European buyers may have to take a more innovative approach to procuring LNG, in terms of being more flexible over longer contractual periods and exploring financing alternatives, panel members said at the LNG2026 conference in Doha.
Europe is due for a mindset shift on how regional buyers agree medium to long-term LNG contracts, because such deals provide more supply certainty for a country. This allows firms to work on their domestic customer bases, the chief executive of Swiss trading firm MET, Huibert Vigeveno, said.
And Europe has the infrastructure, which at present may only be well used at certain times of the year. Facilities should cater for cyclical and seasonal changes. Procurement plans should be able to balance between spot, medium and long-term supply deals, the chief executive of German state-run Sefe, Egbert Laege, said.
Outdated financing methods
Panellists also pointed out that financing options in LNG and associated upstream gas agreements are outdated.
LNG will never compete on cost with piped gas, the chief executive of trading firm Trafigura, Richard Holtum, said. Europe has now built the infrastructure for LNG so it has solved its security of supply issue, but only to swap it for a price issue, he said.
US LNG developers will receive bank financing only when they show that 80-90pc of their capacity is sold on a long-term basis, Holtum said.
Financial institutions 10 years ago would base their financing of oil exploration projects on prevailing price forecasts, he pointed out. "I thought, fast forward to date, developers and financers of LNG projects would now adopt a similar method, but we are not there yet, and it does not seem like we are moving there," he noted.
"It is understandable that European buyers want to have [a degree of] exposure to the region's gas prices," Holtum added. But a long-term contract priced on the Dutch TTF gas hub does not lower the risk of market volatility. And domestic consumers do not want their gas portfolios exposed to a foreign index, for example the US' Henry Hub, he commented.
Innovation in financing LNG projects could come from firms capitalising on their experience in the industry by placing an inherent value on LNG, as there is with crude, he concluded.
