01/11/2006 | zirconia
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  • 2006.01.11 | anorma



    ...Within contemporary long-term contracts, the gas price is a formula price and is based on the so-called escalation formulas that tie down gas prices to the prices of other primary energy resources competing with gas in a given market in a given end-user sector.

    For example, if Russian gas is supplied to German power plants, then its price may be tied to the prices for coal and residual fuel oil (RFO) on the German market. More frequently, gas prices are tied to exchange quotations for RFO and crude oil, which often hinge on global expectations of the world oil market.

    With exchange pricing, the pricing mechanism of LTC TOP is decoupled from the escalation formula and is based on a combination of spot/futures/options with hedging instruments. But long-term contracts as such would continue to exist until the risks related to being a party to them does not exceed the risks related to being a party to a shorter-term contract.

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