Gazprom Resists Calls for Henry Hub Pricing
Russian energy giant Gazprom is certainly not feeling the pressure to bow to pressure from buyers to switch from oil-indexed gas prices to Henry Hub-linked ones.
Speaking at LNG17 on 18th April Gazprom's gas products director, Elena Burmistrova, said the company would consider discussing more flexible pricing options with its buyers but that linking them to US gas prices would not work.
Despite admitting that she would also lobby for Henry Hub linked pricing, if Gazprom was a gas buyer rather than a producer, Burmistrova said the company had no plans to abandon its oil-linked pricing structure for natural gas supplies.
'We are open to discussions but I don't think Henry Hub is quite natural for the pricing mechanism (in Russia),' Burmistrova said.
She added that continued uncertainty over potential US LNG export volumes, which could compete with Gazprom in European markets, meant the state-run company was under no pressure to price its gas more competitively.
So far the US Department of Energy has only approved one export project - Cheniere's Sabine Pass facility in Louisiana. The department is considering several other applications.
US gas producers have expressed frustration with this waiting game and a lack of clarity of clarity regarding the regulatory framework. Key questions such as how much LNG the US will be allowed to export and when the projects will be approved have not yet been answered.
'Here we are in April with no clear idea of what US government policy is going to be,' Betsy Spomer, senior Vice President from BG Group said. 'It could have a significant impact on pricing all over the world.'
Spomer said the extend of US LNG exports will be determined by market dynamics, such as demand levels from Asia.
Asian gas buyers, such as Japan, India and China, have been calling for a break away from oil-indexed prices as the region's demand for natural gas soars. Countries such as Japan are hoping LNG supplies which are priced on a Hub basis, rather than being linked to global oil prices, will lower their import bills.
'Buyers today are waiting for clarity and it's causing other projects not to go ahead,' Spomer said.
Janine McArdle, senior Vice President from Apache Corp. took a similar stance.
'While the markets are there and are hungry you have to be able to meet their demand. If you can't the project falls apart,' McArdle said. 'Yet again we're being stymied by politics.'
Michelle Foss, chief energy economist from the University of Texas, said consistently low US gas prices were also causing investors to shy away from the gas-fired power generation sector.
'We've seen a lot of stress on the gas power generation business and a lot of reluctance to invest,' Foss said. 'A belief is growing that we'll have no more growth in electric power generation. Everywhere in the US people would like a higher gas price.'
US Henry Hub prices have plummeted because of a surge in domestic shale gas production. Average Henry Hub prices this year are around under USD4 per million British thermal units.
Gazprom's Burmistrova said the company won't be developing shale gas anytime soon because its vast conventional gas resources are much more cost- effective to produce.