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For maritime shipping, worldwide developments are of major importance because LNG fuel costs
will be dictated by regional base prices around the world. Many studies project a future global
Historical and current long-term LNG contract prices are strongly correlated to the price of oil.
Based on a relatively constant projected oil price of $100 per barrel through to 2030, future oil-
indexed LNG contracts at prices of $10-15/mmBTU have been used in a range of studies assessing
Although a gradual migration from oil-linked pricing to spot or hub-based pricing is likely, experts
do not expect average spot LNG prices to fall below the cited $10-15/mmBTU, because the break-
even costs of LNG supply are in this price range. However, the possibility of spot gas-linked
contracts for North American LNG could upset the traditional pricing structure.
A Danish Maritime Authority study focusing on Northern Europe has estimated future LNG prices
on the following basis:
An HFO price indexed to a reference crude oil price of $100/barrel.
Projected relative MGO prices based on the historically strong correlation between MGO and HFO
prices. The variance in MGO price is attributed to the rising cost of low-sulphur fuel (2.2 times HFO
price), and the relative level in 2012 (1.6 times HFO price).
Three different future projections for the LNG market:
1. Low case: New production comes on line, combined with falling demand, and results in a
significant drop in price. There is a glut of LNG supply in the Atlantic basin and more US exports
enter the market. It is assumed that the European market is liberalised, which means the oil-gas
link no longer holds.
2. Base case:Prices are expected to weaken in the short term due to low global demand and a glut of
LNG. In the midterm, the link between oil and gas prices is expected to remain in place. Continued
use of oil-linked contracts is driven by a number of factors such as the greater depth of the traded
oil market, enabling better hedging of risks. Timely investment enables supply to remain sufficient
to meet growing demand. LNG trading, capacity and storage capacity increase.
3. High case: The desire of buyers to ensure security of supply means that long-term contracts
remain in place. There is limited potential for substitution in energy generation and energyintensive industries, meaning that demand remains strong despite high prices. Investments in gas
production and LNG are not made in a timely fashion and are insufficient to meet continued
growth in demand.
The results of the analysis are illustrated in the following table, showing LNG price forecasts in
comparison to MGO price forecasts. Royal Haskoning used a comparable future cost figure for
LNG: 60 - 80% of the HFO price on energy basis.
Future price scenarios for shipping fuels (2020-2030); relative prices on energy basis
Future price scenarios for shipping fuels (2020-2030); relative prices on energy basis
absolute
MGO
price
($/tonne)
LNG
price
level
relative
LNG price
compared
to HFO
Base LNG
price
($/mmBTU)
Low
1 LNG_central central 1.6
MGO
1105
low
0.5
7.6
central
2 LNG_central central 1.6
MGO
1105
central 0.7
10.6
high
3 LNG_central central 1.6
MGO
1105
high
0.9
13.8
low
4 LNG_high
MGO
high
2.2
1516
low
0.5
7.6
central
5 LNG_high
MGO
high
2.2
1516
central 0.7
10.6
high
6 LNG_high
MGO
high
2.2
1516
high
13.8
scenario
name
MGO
price
level
relative
MGO price
compared
to HFO
0.9
Further reading
2013, Ocean Shipping Consultants (Royal Haskoning), LNG as a bunker fuel: future demand
prospects & port design options
2013, Ernst&Young, Global LNG - Will new demand and new supply mean new pricing?
2012, Danish Maritime Authority, North European LNG Infrastructure Project
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