India’s top gas importer sees LNG price surge spurring long-term contracts
Surging liquefied natural gas (LNG) prices are pushing buyers to look at securing long-term contracts possibly with an option for a floor and ceiling price to hedge against extreme volatility, the CEO of India’s top gas importer said on Friday.
“Such a volatility was never seen in the history of LNG markets. We have seen the lowest and the highest prices in the last one year,” A.K. Singh, chief executive of Petronet LNG , told the India Energy Forum by CERAWeek, an industry event.
Asia spot LNG prices dropped to a record low of below $2 per million British thermal units (mmBtu) in May last year when coronavirus-induced lockdowns depressed gas demand.
Earlier this month, they rocketed to a record high above $56 per mmBtu. Prices have pulled back to around $30 per mmBtu since, but remain nearly 500% up from last year.
“Every dark cloud has a silver lining and this (high price) situation is pushing people to have more long-term contracts than normally and that could be the best thing for the gas economy across the world,” he said.
Lower spot prices had hurt investment in gas production assets, leading to supply constraints when demand rebounded as the global economy recovered after the pandemic.
Low prices also encouraged buyers to take advantage of spot prices.
Global spot and short-term LNG contracts now account for over 40% of overall volumes, doubling in the last decade, also partly a result of Asian buyers hesitating to make long-term commitments amid energy transition uncertainties and growing supply liquidity, according to Valery Chow, head of Asia gas and LNG research at Wood Mackenzie.