The price of liquefied gas from the USA is indexed to Henry Hub. I expect that this is how the pricing conditions for this contract were formulated. Of course, the cost of gas condensation, followed by freight and insurance, should also be added to its total price. We do not know how comprehensive the contract is, and therefore whether it provides for even the said carriage – says Bartosz Wiśniewski from the Polish Institute of International Affairs (PISM) in an interview with BiznesAlert.pl regarding the PGNiG contract for LNG supplies from the USA.
BiznesAlert.pl: May it seem risky to book capacity of terminals in the US that do not have an environmental decision and permission from the Department of Energy to transfer gas to countries without an FTA agreement?
Bartosz Wiśniewski: I think that this kind of risk was included in the investment commitment decision – because this is the essence of this contract. The subject of the transaction is access to the power of the condensing terminal, and perhaps – it is a matter that has not been made public – also to supply the appropriate volume of gas to it. As for the procedures, they have been simplified in a considerable way yet by the previous administration. New terminals usually receive export permits regardless of whether they have a free trade agreement with a US country or not. Finally, we should remember that long-term contracts, such as the use of the Sabine Pass installation – the first export terminal launched in the US due to the “shale revolution” – were concluded at the beginning of this decade, when the terminal building company did not have all the permits yet. It is a natural turn of events – business development proceeds in parallel with bureaucratic procedures.
The agreement with two companies is preliminary. What will it depend on, whether it will come to fruition?
I assume that the contract provides for contractual penalties if the terminal does not start working on a certain date or if it does not reach its full functionality. We will know more next year when the FID is expected, ie the final investment decision. This will answer the question whether the project is implemented on time. It is also worth following all reports of changes in the share structure of the company responsible for the construction of the terminal.
The key question is obviously the price for such transactions. Is it possible to answer right now, what the price will be in 5 years? What variables will it depend on?
The price of liquefied gas from the USA is indexed to Henry Hub. I expect that this is how the pricing conditions for this contract were formulated. Of course, the cost of gas condensation, followed by freight and insurance, should also be added to its total price. We do not know how comprehensive the contract is, and therefore whether it provides for even the aforementioned freight. Some companies offer such solutions. In addition, apart from the price terms, the sides sometimes refer to the standardized terms contained in Incoterms 2010. They specify the scope of contractors’ rights and obligations, that is to say – who is more at risk.
PGNiG talks about an agreement concerning a total of 5,5 bcm of gas annually. Together with the contracts with Qatar, this gives 8,2 bcm. This is more than the LNG terminal in Świnoujście after expansion. PGNiG will become a global LNG trader?
I think so. For example, today a Malaysian company with a trading office in London can buy liquefied gas from Qatar on the market and send it to a gas carrier in China. As long as it offers a good price. This is the everyday reality of this market. The next stage is the creation of financial instruments that will be based on gas supply contracts and then trading these instruments on the market.
Interview conducted by Bartłomiej Sawicki