Liquefied Natural Gas - LNG Pricing

LNG Pricing

There are three major pricing systems in the current LNG contracts:

• Oil indexed contract used primarily in Japan, Korea, Taiwan and China;
• Oil, oil products and other energy carriers indexed contracts used primarily in Continental Europe; and
• Market indexed contracts used in the US and the UK.;

The formula for an indexed price is as follows:

CP = BP + β X

• BP: constant part or base price
• β: gradient
• X: indexation

The formula has been widely used in Asian LNG SPAs, where base price refers to a term that represents various non-oil factors, but usually a constant determined by negotiation at a level which can prevent LNG prices from falling below a certain level. It thus varies regardless of oil price fluctuation.