Webinar – Gas hub pricing: is there still a role for oil price indexation in long-term gas sales contracts?

For many years, natural gas – both piped and LNG – was typically sold under long-term contracts with prices regularly adjusted and indexed to market prices of so-called competing forms of energy.  While these competing energy forms have included electricity, coal and even firewood, a substantial component of the long-term gas price indexation has been based on market prices of either crude oil or oil-derived products such as home heating oil and heavy fuel oil.

For a number of reasons, the last two decades have seen incrementally rapid changes to this conventional situation.  First, an increasing number of gas production and transport projects are no longer underpinned by long-term sales contracts at all – or even where a contract is in place, the term may be 10 or 15 years as compared with the 25 or 30 years typically seen in the past.  Secondly, the emergence of liquid gas markets, often based around natural gas hubs, has increasingly challenged the idea that natural gas should be valued solely by reference to competing (different) energy forms and has no inherent value of its own.  And finally, the structure of energy markets and energy consumption patterns has evolved to the point that oil-based products are no longer the only, or even the most substantial, competitor to natural gas as an energy source.

This last trend has no doubt been motivated in the first instance by emerging sensitivities to climate change, greenhouse gas emissions and other negative environmental consequences of oil consumption.  This in turn has powered the spectacularly rapid development of cost-effective renewable energy technology, to the point that in many countries solar and wind power can – without government intervention – compete effectively with fossil-generated power from a cost viewpoint.  Faced with these potentially threatening developments, major actors – commercial, governmental and NGO – in the natural gas sector are seeking to ‘green’, or gain environmental credibility for, their projects.  This tendency is particularly marked in the LNG sector, where in recent years several LNG projects, contracts and deliveries have been certified green or carbon-neutral.

The webinar addressed both the general developments referred to above and the specific contribution made by green LNG.  It included the viewpoints of a renowned academic with specialist expertise in green LNG life cycle assessment and of a practising lawyer with extensive experience in energy price disputes and major energy projects.

 

The speakers for this webinar were:

Andrei Belyi (Balesene OÜ, Adjunct Professor at the University of Eastern Finland).  He will address developments in LNG markets, including attempts to create a proper gas-to-gas competition delinked from oil amid the perception of the oil price as a stabilising mechanism, that have occurred particularly during periods of gas oversupply.  He will also address the new challenges to LNG markets including the emergence of green LNG and the underlying need to change the pricing mechanisms.

Andrei Belyi is an Adjunct Professor in Energy Law and Policy at the University of Eastern Finland.  He is also a founder of the energy consulting firm Balesene OU, based in Tallinn, Estonia.  In 2005 he worked for the Energy Charter Secretariat, and subsequently produced a number of publications on the Energy Charter process, particularly on the positions adopted by Russia towards the Treaty.  In 2008-9 he participated in policy discussions in Moscow whilst advocating against Russia’s withdrawal from provisional application of the Treaty.  In 2011, he provided a consultancy report on the Draft Convention on energy security (an alternative to the ECT, proposed by the Russian Federation), and also advised EU Delegations in Moscow and Kiev on the subject.  In 2017 he acted as an external expert to the Energy Charter Conference in Askhgabad, Turkmenistan.

Dr Belyi regularly gives interviews to Natural Gas World, Natural Gas Intel and ICIS on LNG market developments.  His recent publications include a joint policy brief with Florence School of Regulation ‘How Green is Green LNG?’ and a co-authored market analysis of transatlantic LNG prospects with Gelbert & Associates.

Graham Coop (Partner at Volterra Fietta) who will address the evolution of long-term gas sales contracts and will also chair the seminar.  Mr Coop is qualified as a barrister and solicitor in New Zealand and as a solicitor with higher rights of audience (Civil) in England and Wales, and his thirty-year legal career includes seven years as General Counsel to the Energy Charter Secretariat between 2004 and 2011.  Mr Coop advises and represents companies, governments and international organisations on international dispute resolution and public international law, with a particular focus on the energy, natural resources and infrastructure and banking sectors.  He has appeared as counsel, advocate and expert before a wide range of international courts and tribunals, including the International Court of Justice, ICSID, the PCA and the ICC.  The cases in which he has been involved as counsel include numerous price review disputes and other price-related disputes in the energy sector.  He has also advised and represented parties to long-term energy sale agreements wishing to negotiate price adjustments in the absence of contractual price review clauses.  He is on the UK Attorney General’s list of public international law practitioners.

 

For any queries regarding the content of the seminar, please email  Graham.Coop@volterrafietta.com.