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LNG market evolving quickly-IV: Henry Hub pricing model will have to change
Nov 03: Sabine Pass' 115% Henry Hub plus liquefaction” pricing formula as the US standard for FOB Gulf Coast exports may eventually not be working for US LNG exports. In this model offtakers commit to sunk-cost liquefaction fees ranging from $2.25-$3.50/MMBtu that must be paid regardless of whether the service is used.
8A new pricing model evolved by Dominion’s Cove Point, Cameron LNG and Freeport LNG offers buyers additional portfolio diversity with a slightly different take on pricing. Under this contract structure, buyers also commit to a sunk-cost liquefaction fee, but they have the option to source their own gas and hedge price risk further upstream.
8Yet another pricing model by Tellurian Investments for its proposed Driftwood LNG project allows for smaller contracts, totaling about 7 million mt/year, under five-year agreements at
a fixed delivered ex-ship price of $8/MMBtu, starting from 2023.
8LNG priced against Henry Hub was seen as attractive by many Asian buyers looking to reduce costs in the face of high oil prices. But following a steep decline in the price of spot LNG, Henry Hub has lost much of that appeal.
8There are many who claim that if Henry Hub prices rise as forecasted to above $3.50/MMBtu by 2021, they would present challenges for those trying to sell US LNG into Asia, if current depressed spot LNG prices persist.
8"Must run" LNG contracts will not longer be sufficient and other pricing models are already coming up.
Find out what kind of new models are now coming up around US LNG sales
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