The Analysis of Long-Term Liquefied Natural Gas (LNG) Contract Pricing Structure
Post by MSF Chula at Saturday, 30 January 2021 02:35 PM

This research investigates contributing factors, which could impact LNG pricing structure and components (Constant and Slope) in long term contract LNG. The findings suggest that firstly, oil price volatility has no influence on both selection of index and adopting price protected pricing structure. Secondly, the more active Oil Futures market decreases probability of contracting price protected formula as it serves same objective on price risk reduction. Additionally, it increases level of Slope but decreases Constant components, indicating price relies more on Slope rather than Constant when hedge ability increase or Futures market is more functioning.  Thirdly, Slope components are obviously set in reciprocating to Constant (Based Price). The greater the Constant, the lower Slope is distinctly observed. Fourthly, Buyer’s Equity ownership in Seller’s project induce more probability in Gas Index, and has statistical influence on choosing price protected formula rather than the typical straight line. In addition, equity ownership appears to benefit on seller’s projects’ by lowering Slope component. Fifthly, Buyer group Utilities and NOGC significantly has greater slopes compared to other buyer type. However, the result does not find both Utilities and NOGC has lower Constant, in reciprocation. . Sixthly, price settings within the 2-year periods of Fukishima nuclear incident (2011-2012) result in significant numbers of price protected contracts and higher value in Slope component. Lastly, the macroeconomics control variables GDP growth and Baltic Dry Index are positive with Slope, indicating when economic turns well, increasing risk premium embedded in more volatile component can be observed.

Last updated at Saturday, 30 January 2021 02:35 PM