Natural gas price review arbitrations: issues in adopting hub indexation

Boaz Moselle and Luis Agosti authored a chapter in the second edition of Gas & LNG Price Arbitrations: A Practical Handbook. They discuss several questions that arise in the context of price reviews in long-term gas supply agreements when the contract price is reviewed to follow gas commodity market prices, generally referred to as hub indexation.

For many years disputes between buyers and sellers in European long-term gas supply contracts have been about the transition from oil indexation to hub indexation. Today, hub indexation is a generally accepted principle for setting the price in long-term supply agreements in large parts of Europe. The adoption of hub indexation however has not reduced the need for price reviews. Hub indexation eliminates to a large extent the risk of mismatches between prices in long-term import contracts and retail prices. However, the reality is more complex and hub indexation requires addressing several open questions. Fundamentally these issues are (i) price levels and (ii) the indexation structure, which are discussed in this article.

Moselle and Agosti focus on issues that are particularly relevant today in northwest Europe, the only region where long-term gas supply agreements coexist with liquid and transparent gas markets.  Other parts of Europe will face the same issues as liquid gas markets develop (e.g., Spain, Turkey, Portugal).

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