Evolution laws and new trends of global LNG pricing and their implications

Abstract

Natural gas is of great significance to ensuring China's energy security and achieving “carbon neutrality” by 2060. However, the lack of power to decide LNG import pricing and the high resource cost bring challenges to the stable supply of natural gas in China. In this regard, after analyzing the historical evolution laws of global LNG pricing, this paper systematically summarizes the pricing trends of newly signed contracts in 2020, and comparatively analyzes China's long-term LNG import pricing modes and its problems. And the following research results were obtained. First, the global LNG pricing mechanism is more diversified, regional characteristics and “Asian premium” problems are obvious, and different pricing mechanisms complement each other. Second, the newly signed long-term LNG agreement is linked with oil prices to play a dominant role again, and the oil-linked slope declines continuously and presents a dynamic mixed S-curve. Third, China's long-term LNG agreement is linked with oil prices at a high proportion, so there are no market conditions of gas–gas competition and the price review period is long. Finally, several suggestions were proposed for China's LNG import pricing. Firstly, stick to the principles of “short-term flexibility” and “long-term stability”, and make use of multiple modes comprehensively, e.g. gas–gas competition and Brent price linked, instead of completely decoupling oil prices. Secondly, referring to global newly signed contracts and Asian reviewed contracts, adhere to the principle of market parity, improve the price review terms and shorten the review period. Thirdly, the government shall support the construction of natural gas trading centers and futures markets and form the internationally recognized regional benchmark price as soon as possible. Fourthly, make a plan in advance, establish a risk hedging mechanism and control the overall cost of imported LNG resources.