The trading and price discovery for natural gas

Abstract

This chapter argues that pricing mechanisms are a key element of gas trade, as they concur to determine price levels and define commercial strategies. It explains why gas suppliers traditionally defended long-term oil-indexed contracts and analyses the main features of historical contracts. The old consensus on oil indexation, which had been a pillar of international gas trade for a decade, has been eroded in several regions. The chapter discusses how more impersonal market exchange now prevails. Beyond Europe and North America, Asia is also gradually moving towards a larger share of hub indexation, although it is still lagging behind in the process of establishing its own hubs. The chapter concludes that gas prices remain regional even if additional convergence is materialising thanks to the globalising effect of flexible LNG.