Key Learning Outcomes
- Corporate LNG pricing strategies
- Pricing methodologies in various markets
- Price negotiation – critical considerations
- LNG Price reviews and reopeners
- Price Hedging
- LNG Risk & Stress Tests
- With Case Studies and Excel based exercises on:
- Practical examples of how markets work
- Calculating price slopes, proxy curves, etc
- Designing the price clause in LNG contracts
- LNG price review case study
- Calculating financial hedges
- Scenario and stress testing – creating an implementation strategy
Who Should Attend
Any executive from LNG Suppliers, Traders, Importers, End Users and Financiers involved in pricing negotiations and decisions, including but not limited to
- Marketing, Sales and Business Development
- Contracts, In house Counsel and Pricing specialists
- Commercial, Procurement and Financial controllers
TOPIC 1: GEOPOLITICS AND THE INTERNATIONAL LNG INDUSTRY:
- Impacting and influencing factors on supply and demand
- Understanding competition and market behavior (strategic perspective)
- Oligopolistic market behavior – a danger for price regulation?
- The location of the main suppliers (producers)
- Storage capacities (level of inventory) and arbitrage
- The pricing ramifications of flexible vs. inflexible supply (LNG cargos; pipeline transmission)
- Traditional investment criteria
- ‘Spot’ and short term trades – what does a more flexible market mean for the global LNG market?
- Market classifications – gas on gas; indexed pricing to other fuels/substitutes; oil linked; regulated
TOPIC 2: CORPORATE LNG PRICING STRATEGIES
- How global short-term pricing is developing (Henry Hub, NBP, TTF, JKM, EAX, JOE)
- Equity purchase agreements
- LNG flexibility – a key competitive factor?
- Embedding price clauses to reflect flexibility value
- Value sharing diversion clauses examined
- Sourcing new suppliers with alternative pricing arrangements
- Regional purchasing co-operation, purchasing ‘partnering’ or JV’s
TOPIC 3: PRICING METHODOLOGIES IN VARIOUS MARKETS
- Price erosion and oversupply
- Single buyer – single seller
- Multiple buyers and sellers – impacting factors
- The potential problem of destination clauses
- Fixed pricing; fixed pricing with escalator clause; floating price
- Pricing benchmarks and calculations (crude oil, indexation, S curve, Henry Hub spot and forward, NBT spot and forward; JCC)
- Slopes and hybrids as well as convergence of global gas prices, hub price correlations and oil price correlations
Practical examples of how markets work
Excel exercises on calculating price slopes, proxy curves, etc.
TOPIC 4: PRICE NEGOTIATION – CRITICAL CONSIDERATIONS
- Market factors – economic growth; available infrastructure; oil indexation; crude price variation/fluctuations; impact of speculators; global demand patterns – emerging and declining markets – seasonal variation/ weather availability and cost (price) of substitutes (alternative fuels/energy) global supply patterns – level of global production/liquification capacity/storage capacity
- Buyer and seller strategies – terms of agreement; price/volume strategies – economies of scale and scope factors; long term shipping contracts vs. short term ‘spot’ transactions; spot price considerations for ‘offtakers’ – tolling fees from liquefaction owners – adding volatility to the market?
- Caution in capital investments and project selection; contractual renegotiation; procurement negotiation – security of supply – flexibility
- Case study: Designing the price clause in LNG contracts
- Other critical considerations: Force Majeure – buyer’s obligations relating to transportation costs where seller is prevented from delivering; the role of negligence in negating force majeure provisions;
TOPIC 5: LNG PRICE REVIEWS AND REOPENERS
- Understanding the two primary sources of
- LNG pricing models – oil indexation and gas hub prices.
- The buyer’s and the seller’s perspective relative to the underlying nature of the contract
- Why is the option for a review important?
- What are the legal considerations – price review contractual clauses – on what is price reviewed? Analysis of other imported sources of gas supplies
- The impact of alternative fuel usage – i.e. nuclear/coal supplied power generation
- The ‘landed cost’ consideration
- Market liberalisation and the ‘oil displacement’ phenomenon
- The dangers of over reliance of import price data – the ramifications of ‘short – term’ gas vs. ‘long-term’ gas
- JCC Indexation
- Henry Hub Indexation
TOPIC 6: LNG PRICE HEDGING
- ‘Long hedging’ and natural gas futures – ‘rise’ and ‘fall’ strategies
- ‘Options’ contracts – ‘call’ options and ‘put’ options
- Option trading strategies (‘spreads’)
- Why use financial derivatives?
- The question of volume of transaction for liquidity.
- Key factors that impact/influence LNG financial derivatives
- Interactive exercise: LNG price review case study
Excel exercise: calculating financial hedges
TOPIC 7: LNG RISK & STRESS TESTS
- Storage and distribution issues; seasonality; substitutes; security of supply; marine supply chain vulnerability
- What are ‘stress tests’ – a viable alternative to traditional scenario planning? Why? The critical stress test parameters; the danger of ignoring ‘tail events’
- Constructing and implementing scenarios
- A suggested methodological template for stress/scenario planning/implementation
Exercise: scenario and stress testing – creating an implementation strategy
TOPIC 8: LNG DISPUTES AND DISPUTE RESOLUTION
- Factors that cause disputes – the buyer and the seller perspectives of favourable outcomes to a contract
- The two main ‘classifications’ of LNG disputes – price and non-price (destination restrictions; liability and Force Majeure, etc.)
- Price review and price reopener provisions – when do they come into effect? How can a contract price be adjusted?
- What dispute resolutions provisions/methodologies are in place?
- Key issues of consideration in LNG pricing disputes – how has the price review provision been drafted? What has ‘triggered’ the dispute? What form of dispute resolution is most appropriate? What price mechanism adjustments may resolve the dispute?
- Changes to a party’s circumstances and
- Force Majeure provisions
- Trigger events and trigger notifications
On-site & in-house training
Deliver this course how you want, where you want, when you want – and save up to 40%! 8+ employees seeking training on the same topic?
Talk to us about an on-site/in-house & customised solution.