Reading LNG cargo pricing against pipeline gas benchmarks like TTF and NBP

TTF (Title Transfer Facility, the Dutch virtual gas hub) and NBP (National Balancing Point, its British equivalent) are among the most commonly cited gas benchmarks in Europe. Neither, however, prices the same product as an LNG (liquefied natural gas) cargo. Both are hub prices for pipeline-quality gas that is already in the grid. An LNG cargo price, by contrast, is usually quoted on a delivered basis: it includes freight and insurance to the discharge terminal, but the gas has not yet been regasified. Comparing an LNG cargo price directly with TTF or NBP is therefore misleading unless shipping, regasification and terminal costs are accounted for first. Any price levels referred to in this article are illustrative only.

For LNG traders, gas market analysts, and utilities or industrial buyers weighing LNG against pipeline supply, getting this adjustment right is the difference between a like-for-like comparison and two numbers that only look comparable.

What is TTF and NBP?

TTF is now Europe's most cited gas benchmark. NBP remains important, although TTF has overtaken it in recent years. Both refer to pipeline-quality gas that is already onshore and in the grid. Neither includes shipping or regasification costs, because the gas they price never needed to be shipped or regasified to reach the quoted point.

JKM (Japan Korea Marker), Asia's LNG benchmark, is also worth including here, although it is not a European hub. It prices cargoes delivered into North Asia on a delivered basis comparable with European LNG assessments, which TTF and NBP are not. When deciding whether a flexible cargo is better sent to Europe or Asia, the useful comparison is JKM against a TTF or NBP figure adjusted to a delivered basis. Comparing JKM with unadjusted TTF or NBP repeats the mismatch this article describes.

What does a LNG cargo price include?

LNG cargoes are often assessed on a delivered ex ship (DES) basis, meaning the seller covers freight and insurance until the cargo is discharged at the receiving terminal. The price reflects LNG delivered to the terminal, still in liquid form and not yet regasified into the pipeline gas that TTF and NBP price. Regasification and terminal fees are usually separate costs incurred after arrival, and are not included in the headline cargo price.

Long-term LNG contracts often use pricing formulas that differ from spot hub prices, such as oil indexation or a mix of benchmarks. These need further translation before they can be compared meaningfully with TTF or NBP. A cargo priced under an oil-linked formula agreed years ago may bear little relation to current spot market economics, and treating that contract price as a spot assessment can distort the comparison, quite apart from the shipping and regasification adjustments covered below.

Adjusting LNG prices to compare with TTF or NBP

A proper comparison means either adding estimated shipping costs to a hub price, to estimate what an equivalent delivered LNG cargo would cost, or subtracting those costs from an LNG price, to estimate its netback value at the hub. Where the comparison needs to reflect gas that has been fully landed and regasified, regasification and terminal fees must be included as well as freight.

The route and vessel type matter more than a single flat freight assumption suggests, because shipping costs vary with distance and with vessel availability at the time. Contract terms add further complexity. Destination flexibility in particular affects how directly a cargo's price translates into a hub equivalent: a cargo that can be redirected mid-voyage has a different value from one contractually tied to a single delivery point.

Why the gap between LNG and hub prices changes

The spread between LNG cargo prices and pipeline hub prices is not fixed. Freight rates and vessel availability change the cost of moving cargoes between regions, which directly changes the adjustment needed. The relative tightness of the European and Asian markets is another key factor: divertible cargoes tend to move towards whichever region offers the better netback at the time, and that netback depends on the price gap between regional hubs minus shipping costs.

Seasonal demand, particularly for winter heating, can widen or narrow regional price gaps considerably. Supply-side changes, whether a disruption to existing supply or new liquefaction capacity coming online, can also shift the balance between regions, and this shows up directly in the relationship between LNG and hub prices.

How is the comparison used?

Done correctly, the comparison shows traders whether a flexible cargo is more profitable delivered to Europe or Asia at a given moment. It helps buyers judge whether LNG or pipeline supply offers better value for a particular delivery window. It also explains why regional gas prices converge or diverge over time, since much of that movement comes from changes in the size of the freight and regasification adjustments described above.

Shipping and freight professionals are central to this comparison, which is easy to miss from a purely trading perspective. Deciding whether to divert a vessel already at sea to the region now offering the better netback relies on exactly the same adjusted comparison a trader uses to spot the opportunity. The difference is that the decision is made under time pressure, within the constraints of that vessel's remaining schedule and contract.

Whatever it is used for, the comparison is only as reliable as the freight and terminal fee data behind it. It should use current figures rather than a fixed cost assumption carried over from an earlier period, as freight rates and regional balances can change significantly within weeks.

The comparison also informs a broader reading of the gas forward curve, much as cross-commodity relationships inform the power forward curve (see How to read a power forward curve and what it signals about future prices). A sustained change in the gap between LNG netback values and TTF, as opposed to a single day's move, tends to appear in the shape of the forward curve before it is obvious in spot prices, because forward markets price in expectations of how the regional balance will develop.

LNG cargo prices and benchmarks such as TTF and NBP are not directly comparable unless shipping and regasification costs are taken into account, because they reflect different stages of the supply chain. The adjustment needed changes with freight rates and with the balance of supply and demand between Europe and Asia, so any comparison depends on current data. For live comparisons, use the latest freight, terminal fee and benchmark price data rather than the illustrative figures referred to here.