GAS PRICES DOWN
PLATTS, BLOOMBERG - The share of gas-on-gas price formation in European natural gas consumption stood at 66% in 2016, up from 64% the year before, as oil indexed gas prices continue to lose favor, according to the latest International Gas Union price report published Wednesday.
In the report -- trailed in May at the Flame conference in Amsterdam -- the IGU also confirmed that the average global wholesale gas price averaged just $3.35/MMBtu in 2016, the lowest price in any survey done by the IGU since it started in 2005.
European buyers of gas are increasingly pushing for more gas hub-indexed pricing at the expense of the traditional oil-indexed contract gas from suppliers such as Russia and Algeria.
Norway's Statoil has shifted almost entirely to hub-indexed gas in its sales contracts, though Gazprom continues to laud oil indexation as a fair way to price gas.
In Northwest Europe -- Belgium, Denmark, France, Germany, Ireland, Luxembourg, the Netherlands and the UK -- the share of gas-on-gas priced consumption was 91% in 2016, down from 92% the year before, the IGU said.
While a slight dip, it is still by far the largest share and is up from just 27% in 2005.
Elsewhere, gas-on-gas pricing surged as some long-term import contracts ended and buyers renegotiated their import agreements to include more hub pricing.
In Central Europe -- Austria, the Czech Republic, Hungary, Poland, Slovakia and Switzerland -- gas-on-gas pricing increased its share of demand to 58% last year from 56%.
And in Scandinavia -- Estonia, Finland, Latvia, Lithuania, Norway and Sweden -- the share of gas-on-gas pricing soared to 46% in 2016 from just 15% the year before.
But oil indexation is still the main pricing mechanism across the Mediterranean region, and actually registered a slight increase in Europe as a whole to 29.9% of the total consumption due to shifts in gas pricing strategy in Turkey, the IGU said.
That compares with 29.6% in 2015.
"Oil indexation increased at the expense of bilateral monopoly pricing in LNG price formation in Turkey," it said. "Oil dominates still in Mediterranean -- Spain and Turkey -- and has a 32% share in Southeast Europe."
Oil indexation continues to hold firm elsewhere in the world.
According to the IGU survey, oil indexed gas demand accounted for 20% of the total, 1.5 percentage points higher than in 2015.
"[This] reflected a small rise in Europe at the expense of bilateral monopoly in Turkey, but principally in Asia and Asia Pacific, as the share in LNG imports increased," it said.
The increase also reflected a rise in domestic production in China, as the full-year effect of the change in city-gate pricing came through.
Regulated pricing formation still dominates elsewhere, including in the former Soviet Union, Africa and the Middle East.
Gas-on-gas pricing has the largest share of global demand at 44%, totalling around 1,614 Bcm, dominated by North America at 963 Bcm, followed by Europe at some 344 Bcm and the former Soviet Union at 155 Bcm, the IGU said.
"In all gas-on-gas pricing can now be found in some 52 countries, in one form or another, and in all regions," it said.
The oil indexed share at 20% totals around 726 Bcm and is predominantly Asia Pacific (250 Bcm), Asia (229 Bcm) and Europe (157 Bcm).
"It is widespread being found in some 61 countries, including virtually every country in Europe, and in all regions except North America."
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