PUTTING A PRICE ON ENERGY. International Pricing Mechanisms for Oil and Gas ENERGY CHARTER SECRETARIAT

Transcription

1 PUTTING A PRICE ON ENERGY International Pricing Mechanisms for Oil and Gas ENERGY CHARTER SECRETARIAT

2 Table of Contents Foreword 3 Acknowledgements 5 The Energy Charter Treaty 7 Executive Summary 19 Chapter 1 Introduction Issues Approach Questions Investigated in Detail 33 Chapter 2 Explaining Oil and Gas Pricing Mechanisms: Theoretical and Historical Aspects Theoretical Aspects Historical Aspects Market Structure and Pricing Mechanisms 61 Chapter 3 Oil Pricing Summary Introduction Oil - a Commodity Like No Other Crude Oil and Petroleum Products Benchmark Crude Crude Transactions Price Formula Netback Pricing Refining Margins Development of Oil Pricing Mechanism Early Days Majors OPEC Spot and Futures Markets Spot/Forward/Futures/Options Spot Market Forward Market Futures Market Options Market 85

3 3.5 Hedging and Speculation Hedging " Long Hedge and Short Hedge Hedgers, Speculators and Arbitrageurs Regulatory Authority Current Oil Market Fundamentals Recent Price Developments Demand Supply Refining Stocks Conclusions 96 Chapter 4 Gas Pricing Will Gas Follow Oil to Become a Global Commodity? North America Summary Introduction The Integrated North American Natural Gas Transmission System North American LNG Import Terminals US Natural Gas Demand US Natural Gas Supply Canadian Supply and Demand The Development of US Natural Gas Regulation The Historic Basis of US Gas Regulation The Natural Gas Act of The Supreme Court's Phillips Decision The Natural Gas Policy Act of Industry Response to the NGPA FERC Order FERC Order The Pipeline Take-or-pay Problem Canadian Gas Regulation The Evolution of North American Gas Prices Pre-NGPA US Gas Pricing The NGPA and Partial De-regulation of Gas Prices The Effect of US Regulatory Policies on Canadian Prices The Current North American Pricing System The Emergence of Henry Hub as the Centrepiece of North American Pricing The Operation of the North American System Gas Price Formation in North America

4 Current North American Price Relationships Conclusions ' The United Kingdom Summary Introduction The History of UK Gas Regulation The UKTax Regime The Natural Gas Transmission System UK Supply and Demand Gas Demand Gas Supply and Trade Future UK Gas Supply The LNG Terminal Third-party Access Issue Natural Gas Pricing Pricing before Industry Restructuring Pricing in the Restructured Gas Market How Do Prices in the UK Interact with Continental Prices? The Experience of the 2005/2006 Winter Conclusions Continental Europe Summary Development of Market Structure and Imports The Groningen Concept of Replacement Value and of Long-term Minimum-pay Export Contracts Gas Import Contracts Following Groningen Price Review Rounds Regulatory Change Cross-border Gas Deliveries in Former COMECON States Conclusions LNG Summary Introduction The History of World LNG Trade The Role of Long-term Contracting in Traditional LNG Trade LNG Costs The Emergence of More Flexible LNG Markets Arbitrage LNG Pricing Regional Differences in the Logic of LNG Pricing Early Atlantic Basin LNG Pricing Early Pacific Basin LNG Pricing Mounting Pressures for Change in Pricing Formulas in the 1990s 191

5 4.5.4 New Approaches to LNG Contracting in the 1990s New Patterns of Asian LNG Contracting China and India Enter the Asian Market / Oil Price Escalation and its Impact on Northeast Asian Prices Recent Asian Market Developments The Emerging North American West Coast Market New Patterns of Atlantic Basin LNG Contracting Middle East Contracting Contracting for Restructured Gas Markets North America The UK Conclusions 200 Chapter 5 Overall Conclusions 203 Bibliography 213 Abbreviations and Acronyms 219 Glossary of Terms