Month: January 2019

Transmission fees charged to Gazprom in Europe vary between $1.2-$2 per 1 mcm per 100 km.

Since 1 thousand cubic meters (mcm) is 36.2 mmbtu, this means that the price per MMBtu per 100 km is between 0.038674 to 0.055249.

The concept of the netback pricing is designed to permit an apples-to-apples comparison of destination market gas value for a given spot LNG cargo at its point of origin. Namely, if the price we saw was the price sold by x supplier to y client/market, we would not know what were the costs to get the gas to the client and so we would not know at what price the gas was sold. At the end of the day, the cost of shipping and all that this entails, whether it is paid by the seller (DES) or the buyer (FOB) is the same costs (but unknown to us).

Thus the price reporting companies (such as ICIS, Platts, WGI, etc.) often like to give the gas price as a netback price. This price is the price after Liquefaction and after dedicating all the costs to transport it to the market. This is really the price/cost that interests us, when we try to compare ourselves with all the other suppliers in the world.

The netback prices is calculation by the price reporting companies based on the end price that they know, and taking into account a comprehensive set of variable costs including ship charter rates, bunker fuel pricing, port and canal charges, as well as cargo boiloff rates and other factors.

Netbacks are calculated as follows:

Value of Volume for Sale minus Transport Costs equals Netback Price.

Value of Volume for Sale = (Gas Sales Price x Volume for Sale) / Volume for Sale

The value of the volume for sale is calculated based on the gas sales price in the destination market multiplied by the gas volume that arrives in the destination market – minus the volume that was used for fuel, or lost, along the way. The result is divided by the volume for sale to obtain a value in US dollars per MMBtu for the delivered gas.

Transport Costs = [(Terminal Costs x Unloaded Volume) + (Total Transport x Loaded Volume)] / Volume for Sale – (Hedging Cost + Buyer’s Margin)

Transport costs comprise all costs incurred to transport the gas volume from port of origination to the destination port including terminal costs, shipping costs, etc. The sum of transport costs is divided by the volume for sale to obtain a transport cost in US dollars per MMBtu.

As to how they know the final gas sales price, this is not 100% accurate as it is based on their estimate based on the price reporting companies talking to dozens if not hundreds of traders every day/week. The Gas Sales Price is thus an estimate of the prevailing spot market price for a particular region and varies daily.

Assumptions used in estimating volumes include a standard 155,000 cubic meter ship and a boiloff rate of 0.15% per day. Multiplying by the heat content factor unique to each port gives the loaded volume (LV) at the point of origin.

Multiplying by the boiloff rate, assumed to be 0.15% per day, times the number of travel days, plus the number of Canal Days, if any, times the loaded volume (LV), results in the Unloaded Volume (UV) at the port of destination.

By then subtracting certain gas requirements at the port, the volume of gas for sale is derived.

Terminal Costs (TC) (US$) – Terminal costs are incurred when LNG is delivered into the terminal’s receiving system and regasified. The cost is charged by volume.

Total Transport Costs (TTC) (US$) – Total transport costs include ship charter, port charges, bunker fuel cost, canal charges (if any), demurrage, and working capital. The total cost is then divided by the volume per sale to get a $/MMBtu cost for transport.

Measures all non industrial and power offtake of gas