Gas-on-gas pricing of LNG sees further growth in 2021: IGU
Gas-on-gas (GOG) pricing in the LNG market saw further growth last year, up two percentage points versus the previous year, the International Gas Union (IGU) reported in its 2022 Wholesale Price Report.
This marks a continuation of a trend that began in 2018, the IGU said. The GOG share of LNG imports was only 25% in 2016, but has expanded rapidly since due to increased spot sales and the rush of LNG to Europe's traded markets.
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For the first time since 2016, the share of the spot LNG market was notably down last year, at 34% versus 35% in 2020. But this was more than compensated for by the sharp growth in LNG cargoes to traded markets and those linked to hub prices.
"Competitively set gas on gas market pricing is the very definition of flexibility, which is what is required in the currently turbulent market," the IGU explained. "Thanks to the large share of gas-on-gas priced volumes, the market was able to send effective price signals for the supply to go to where it was required most."
Despite this, the GOG share in overall gas consumption fell slightly by 0.3 percentage points, to 49% of the total, with demand in Turkey, Spain and China serving as the biggest contributors to this change. In contrast, oil price escalation (OPE)-linked pricing saw its share expand by 0.5 percentage points to just over 19% of total consumption.
The report notes that average global wholesale prices for gas rose from a record low of $3.22/mn Btu in 2020 to $5.54 in 2021 – just shy of the record $5.58 seen in 2013. They have since climbed further, amid ongoing cuts in Russian gas supply to Europe, which has led to more global LNG being diverted there.
"This edition of the report comes out in a year when the gas markets have been experiencing unprecedented challenges and turbulence; and when gas consumers are struggling with abnormally high price levels," IGU President Madame Li Yalan said in a statement. "The findings of the report confirm that there is now a functioning global gas market, and despite the challenges faced by everyone in managing the high-price environment, a well-functioning market is key to ensuring energy security."
"Ongoing efforts to add new sources of gas supply, together with prudent measures to enhance efficiency and conservation on the energy demand side are needed to help rebalance global energy markets and make energy access secure and affordable to all," she continued.