Screen-print style poster of two price curves crossing over an LNG cargo

CASE STUDIES / INDEXATION · JUL 2​025

What is the right to choose a pricing formula worth?

The study values a buyer’s choice between Brent-linked and HH-linked prices for each LNG cargo.

$0.52/MMBtu

MEAN VALUE OF THE CHOICE VS BRENT-ONLY PRICING

View as slides (PDF) →

Compare three purchase structures.

01 · PORTFOLIO

Twelve monthly US cargoes supply a TTF-linked German sales contract using one vessel. The buyer either uses Brent, uses HH or chooses the cheaper formula for each cargo.

1

Brent-only purchases

Twelve monthly US cargoes bought using the Brent formula and sold in Germany at TTF-linked prices.

2

HH-only purchases

The same portfolio, with every cargo priced using the Henry Hub formula.

3

Choose the cheaper formula

Same cargoes, same windows; for each cargo the buyer settles on whichever formula is cheaper that month.

FORWARD CURVES OF 9 JULY 2​025 · DEMAND LEG TTF IN ALL BOOKS · 12 X 3.65M MMBTU · 1 X 174K VESSEL

Start from similar forward values.

02 · FORWARD PRICES

The formulas are calibrated so both fixed-index portfolios earn about $28.8M at forward prices. The choice adds approximately $361,000, or $0.01/MMBtu.

$0M$10M$20M$30M$28.8MBRENT-LOCKED$28.8MHH-LOCKED$29.1MFREE TO CHOOSEAT THE FORWARD CURVES OF 9 JULY 2​025 · INTRINSIC OPTION VALUE ≈ $361K
Both fixed formulas start near $28.8M profit. Choosing between them adds about $361,000 at forward prices.

Identify when each formula is cheaper.

03 · PRICE COMBINATIONS

The purchase price is the lower of the two permitted formulas for each cargo. The boundary plot shows where HH-linked supply becomes cheaper than Brent-linked supply under the tested prices.

BRENT-LOCKED-50%BASE+50%HH+50%BASE-50%BRENTHH-LOCKED-50%BASE+50%HHFREE TO CHOOSE-50%BASE+50%HHONE-DIMENSIONAL · EACH BOOK SEES ONLY ITS OWN INDEXBI-DIMENSIONAL · THE BEST OF BOTHLOSS$0PROFIT · PER-MMBTU SCALE QUALITATIVE
Profit per MMBtu when Brent and HH change. The flexible contract uses the cheaper formula. Colours are illustrative.
VS THE BRENT-LOCKED BOOK-50%BASE+50%HH+50%BASE-50%BRENTVS THE HH-LOCKED BOOK-50%BASE+50%HH+50%BASE-50%BRENTCHEAP HH ACTIVATES THE CHOICECHEAP BRENT ACTIVATES IT HERE$0 · LOCKED BOOK ALREADY OPTIMAL≈$3.50UP TO ≈$7/MMBTU
Each index varies from 50% below to 50% above its reference price. Labelled values come from the study.

Recalculate across 1,000 price paths.

04 · PRICE SIMULATIONS

Mean portfolio profit is $30.82M with Brent, $35.11M with HH and $53.51M with the pricing choice.

$-100M$0M$100M$200MMEAN · BRENT BOOK $30.82MMEAN · HH BOOK $35.11MMEAN · FREE CHOICE $53.51M1,000 MC PATHS, RE-OPTIMISED PER PATH · SHAPES ILLUSTRATIVE, MEANS EXACT
Portfolio profit across the same 1,000 simulated price paths, compared with the forward-price result.

Measure the right against each benchmark.

05 · VALUE OF THE CHOICE

For every path, subtract the fixed-index profit from the flexible profit. The mean difference is $0.52/MMBtu against Brent and $0.42 against HH.

$0.00$0.50$1.00$1.50$2.00VS BRENT · MEAN $0.52, MEDIAN $0.44VS HH · MEAN $0.42, MEDIAN $0.34RIGHT-SKEWED · TAILS TO ≈$2VALUE OF THE INDEX CHOICE PER PATH · $/MMBTU · ILLUSTRATIVE CURVES, STUDY VALUES
Choice value versus Brent: mean $0.52 and median $0.44/MMBtu. Versus HH: mean $0.42 and median $0.34/MMBtu.

06 · RESULT

Mean choice value of $0.52/MMBtu versus Brent-only and $0.42/MMBtu versus HH-only.

The pricing formulas deliberately start near equal value at forwards. The simulation values depend on their calibration and price assumptions. A separate premium charged for the right would reduce its net benefit.

What this comparison shows.

07 · TAKEAWAYS

✓

Start from similar forward values

The formulas are calibrated so both fixed-index portfolios earn about $28.8M at forward prices. The choice adds approximately $361,000, or $0.01/MMBtu.

✓

Measure the right against each benchmark

For every path, subtract the fixed-index profit from the flexible profit. The mean difference is $0.52/MMBtu against Brent and $0.42 against HH.

!

Scope of the result

The pricing formulas deliberately start near equal value at forwards. The simulation values depend on their calibration and price assumptions. A separate premium charged for the right would reduce its net benefit.

How the study was calculated.

08 · CALCULATION

1

Set up the comparison

Twelve monthly US cargoes supply a TTF-linked German sales contract using one vessel. The buyer either uses Brent, uses HH or chooses the cheaper formula for each cargo.

2

Calculate the alternatives

The purchase price is the lower of the two permitted formulas for each cargo. The boundary plot shows where HH-linked supply becomes cheaper than Brent-linked supply under the tested prices.

3

Review the result

Mean choice value of $0.52/MMBtu versus Brent-only and $0.42/MMBtu versus HH-only.

Modelled results depend on the contracts, prices and operating assumptions used.