Belgium, (Brussels Morning Newspaper) The European Commission proposed a new liquefied natural gas (LNG) price benchmark based on transactions.
The body pointed out in a paper published on Thursday that the benchmark should reflect real price of LNG and be based on cargo delivery prices, according to Reuters reporting.
“The complementary benchmark would limit the current negative effect on price formation due to infrastructure bottlenecks and is thus expected to bring prices closer to the world market levels,” the Commission stressed.
It warned that decline of Russian natural gas deliveries via pipelines coupled with record-high import of LNG creates pricing mechanism imbalances.
Standard LNG benchmarks in Europe include the Title Transfer Facility (TTF) in the Netherlands and the National Balancing Point (NBP) in the UK.
According to some industry sources, the TTF price is affected by sentiment and geopolitics rather than supply and demand alone, which is why it is no longer useful as a yardstick for LNG price in Europe.
Market disturbances
As European countries look for alternatives to Russian natural gas, LNG imports have reached record-high levels this year. According to analysts, Europe would have to import roughly 200 million tonnes of LNG in the next ten years to replace Russian imports.
Due to different capacities to process LNG and other infrastructure limitations, LNG prices have diverged significantly between European hubs.
Price in France, which has LNG infrastructure, are lower compared to Germany, which does not have any LNG terminals.
According to an EU official, the EC started working on the new benchmark with the EU Agency for the Cooperation of Energy Regulators (ACER). “It’s not a matter of days,” the official noted and added “of course, it is a process, but I think we can accelerate a bit.”
Hans van Cleef, an economist at Dutch ABN AMRO Bank, stated “the TTF is still by far the most liquid gas market in Europe and thus most representative.”
He concluded that excluding LNG from TTF will lower liquidity, which will create “huge risks of even higher volatility and thus possible bigger price swings.”
Aurora Energy Research analyst Anise Ganbold warned that lowering LNG prices could have unintended consequences.
