The Impact of Pipeline and Terminal Infrastructure on LNG and Gas Prices: SPA Contract Strategy – A Comprehensive Approach to Optimize Contracting, Pricing, and Operations through Effective Use of LNG Terminals
Why LNG Prices for Europe Trade Lower Than TTF: Terminal Infrastructure and Import Cost Differences
The article below reports that LNG bound for Europe is trading at a discount of around $0.10–$0.15 per MMBtu compared to the TTF hub price. It also notes that spot LNG trading has been relatively inactive.
Let’s first clarify the definitions of TTF and European LNG prices.
What is TTF and NWE Spot LNG?
TTF (Title Transfer Facility) is the Dutch gas hub price—essentially, the price of gas onshore within the Netherlands’ pipeline system.
European traders often use TTF as a benchmark for onshore gas pricing across Europe, as TTF is the most active and liquid gas trading hub on the continent. It’s heavily used for hedging and futures trading.
NWE Spot LNG Price (Northwest Europe Spot LNG Price) reflects the price of offshore LNG.
This offshore LNG price is nearly always lower than TTF. Why? Because it does not include the costs of regasification and terminal use—expenses required to convert LNG back into gas and inject it into the pipeline network.
For example:
If the onshore TTF price is $10/MMBtu and terminal costs are $0.50/MMBtu, then the offshore NWE LNG price would be about $9.50/MMBtu.
While TTF and NWE Spot LNG prices tend to move together directionally, the absolute price difference usually reflects the regasification cost, which is typically minor—hence their high correlation.
Why TTF and LNG Prices Diverged in 2022: Terminal Capacity Shortages
An exception occurred in 2022, when a significant spread developed between the onshore TTF and offshore NWE LNG prices.
This divergence was driven by a shortage of terminal infrastructure—when Russia halted pipeline gas supply, there were not enough LNG terminals in the Netherlands and Germany to accommodate the required import volumes.
As a result, NWE LNG prices disconnected from TTF, as available LNG couldn’t be regasified and transported inland.
As shown in the chart, the TTF price surged far beyond normal terminal costs.
Post-2022 Outlook: Terminal Expansion and Price Normalization
Since then, Germany has significantly expanded its terminal infrastructure.
Therefore, the spread between TTF and NWE LNG prices is expected to stay narrow moving forward. Offshore LNG will generally trade at a small discount to TTF, in line with standard terminal fees.
Key Insight and Application: How This Applies to SPA Flexibility and Option Pricing
The large spread seen during 2022 was a result of terminal bottlenecks. When TTF spiked above $90/MMBtu, the spread over LNG reached more than $50/MMBtu—far more than the typical $0.50 terminal fee.
If terminal capacity had been sufficient, that spread wouldn’t have expanded so dramatically.
In this exaggerated context, the value of terminal access could be seen as $49.50/MMBtu ($50 minus $0.50)—highlighting just how critical infrastructure availability is.
Of course, LNG prices also rose due to disrupted supply-demand balance. But without terminal limitations, gas prices may not have hit such extreme levels.
In the graph, as demand falls and terminal capacity expands from late 2022 onward, both prices fall and the TTF-LNG spread returns to historical norms.
- Red line = Price spread
- Blue line = TTF price trend
Domestic Relevance: Applying This to LNG Long-Term Contract Flexibility in Korea
While Europe experienced price spreads due to terminal scarcity, Korea—being fully dependent on LNG imports—must consider a different risk: inability to receive LNG due to lack of terminal capacity or a sudden drop in demand. (Here, TOP—Take-or-Pay—risk is assumed without mitigation for simplicity.)
It typically costs about KRW 15–25 billion ($115M–$190M) to lease a domestic LNG storage tank. Assuming a throughput of 3.65 TBTU, this implies a terminal capacity cost of about $0.3/MMBtu.
Thus, paying $0.3/MMBtu either:
- For additional terminal rights, or
- For embedded flexibility (e.g., DQT clauses) in SPA contracts to manage delivery timing or volume
…should be considered equivalent in cost-effectiveness.
As demonstrated, LNG terminal capacity and its cost are central to negotiating flexibility and optionality in SPA contracts.
European Context Recap: Infrastructure Defined Market Risk Exposure
- Russia’s pipeline supply cut drove LNG prices up.
- Germany was the hardest hit—until 2022, it had no LNG terminals.
- Germany also had the smallest LNG import capacity among Western European countries.
From January 2023 noted that domestic gas prices diverged depending on terminal capacity—countries like the UK, Spain, France, and Italy fared better due to larger terminal networks.
Related reading:
LNG Terminal Expansion History in Europe
Since 1968, Europe has been expanding its LNG terminal capacity. In 2009 alone, import capability grew by nearly 30 million tons.
Cumulatively, Europe now holds over 200 million tons/year of regasification capacity.
Yet the gaps in Germany and the Netherlands created vulnerabilities during the crisis.
Countries with robust terminal capacity weathered the storm more effectively—infrastructure defined resilience.
