28 Oct 2022 10:38

Novatek CEO: Interest in pegging gas prices to oil returning, more predictable

BAKU. Oct 28 (Interfax) - Gas consumers again prefer pegging gas prices to oil prices, as this is more predictable, Novatek CEO Leonid Mikhelson told reporters.

"The contracts that were signed six to eight years ago were mostly pegged 100% to oil prices. Every year, after all, some share was pegged to gas indices even though thoughts were voiced that 100% must be pegged to the gas index," Mikhelson recalled.

"There is now some kind of return from consumers to the fact that, I do not know, perhaps it is a credit to OPEC that oil prices are more predictable, more understandable than gas prices," Mikhelson said, noting that Europe is now discussing the possibility of changing pricing at the highly liquid TTF hub.

"Brussels said that the TTF index should be used, but now it does not know what to do with it. It is starting to figure out how much of a percent per day it should change, when trading would cease [if there is a sharp change in price], as with shares," Mikhelson said.

"However, these are company shares, not a commodity, not gas. How could this be introduced for gas?" he asked.

"Now we sense a return, for the most part, to the oil peg," the CEO added, noting that consumers want more predictable prices.

In turn, Mikhelson believes that there should be a hybrid peg in the price for gas. "I think it should be both. When you ask a consultant, he first of all asks whether we are buying or selling. If we are buying, then I would say 60% of oil and a maximum of 40% of gas, or maybe 70% to 30%," he said.

Mikhelson also said that about half of the LNG that the company would sell at the terminal's hub at Kamchatka would be sold at spot.

"The Kamchatka-hub will be very good [as a market], it should start operating sometime at the end of next year already, I think. (...) If we are talking about the market of Korea, Japan, and China, in terms of distance, then availability is 3-6 days [from the LNG production location], and some share of spot would definitely be present," the CEO said.

"Let us see, in principle, it is beneficial for us to have a large share of spot; and if there is a good spot volume, then we think that once Arctic LNG 2 has launched at full capacity, then it would be brought to 15 million tonnes of transshipment there [at Kamchatka]; and if 7-8 million tonnes are at spot on a regular basis, then it could already be used for long-term contracts, though this is in 5-6 years," Mikhelson said.

He also expressed the opinion that the idea of a gas OPEC is not feasible because Qatar, which plans to become the world's largest LNG supplier, is not interested in it.

"Frankly, I do not believe in the possibility of creating a gas OPEC," he said, adding that the oil market is controlled more by countries than the gas market is, especially the LNG market.

"Probably this year, the United States could overtake Qatar [in LNG production] by 1.5 years. However, this is a completely different market, this is a gas market. There are owners of LNG plants and mainly majors that enter into contracts for liquefaction and that buy LNG. The head of Qatar Energy, Saad Sherida al-Kaabi, says (...) that we would command the gas market, and he is correct for the most part. Without Qatar, there is no point in a gas OPEC, and it is not needed," Mickelson concluded.