How LNG Pricing Works: Shipping, Netback and Unit Conversion

An LNG price represents a chain that makes gas movable by sea

LNG is a chain that cools natural gas into liquid, transports it in a specialised ship and turns it back into gas at an import terminal. Before liquefaction, treatment removes water, carbon dioxide, sulfur compounds and other components as required by the facility specification. Refrigeration cycles consume energy, tanks hold the LNG and loading systems transfer it to the vessel. At destination, unloading, storage, vaporisation and any required conditioning precede pipeline send-out. A constraint at any one stage can prevent extra cargo production even when upstream gas is abundant.

The EIA describes LNG as natural gas cooled to approximately minus 260 degrees Fahrenheit, at which point the liquid occupies about one six-hundredth of the volume of gaseous natural gas. That compression in volume enables marine trade, but cooling, containment and regasification need costly assets and energy. LNG transport is therefore not a simple pipeline freight charge. It is a sequence of capacity reservations and operations extending across assets and time.

FOB and delivered prices place the commercial boundary in different locations

Before comparing two LNG prices, identify where title or risk transfers, who arranges the vessel and which delivery window must be met. An FOB basis commonly places the price around the loading terminal and can leave shipping with the buyer. A delivered basis commonly places transport to the discharge port with the seller. Those labels are not a substitute for the contract. Read the delivery point, title transfer, quality, quantity tolerance, demurrage and diversion provisions before assigning any cost or risk.

Pricing formulae also differ. A contract may refer to a gas hub, an oil-indexed formula, a fixed component, slope, lag, floor, ceiling, destination adjustment or spot assessment. A long-term contract and a prompt cargo assessment differ in period, volume commitment and flexibility even when both display a number for the same month. Preserve the applicable pricing month, averaging window, currency, heat basis and delivery terms as well as the benchmark label.

Do not infer the complete transfer of risk in an individual contract from an FOB or delivered abbreviation alone.

Shipping depends on distance, time, fuel and loss as well as freight

Voyage cost can include vessel charter or ownership, fuel, ports, canals, insurance, loading and unloading time, and a ballast leg. An unchanged daily charter rate does not create the same cost per cargo when distance, speed, canal queues, weather and port congestion differ. The vessel’s return or repositioning route also affects a commercial decision, so a one-way map distance is not a complete shipping model.

LNG in a cryogenic tank is not perfectly static; some becomes boil-off gas. Vessel designs may consume that gas as fuel, reliquefy it or manage it through another permitted system, so cargo loss and fuel accounting vary by ship, voyage and contract. Do not subtract a universal boil-off percentage. Compare loaded and unloaded energy, voyage days, heel, vessel specification and measurement basis. The value effect of the same physical loss also grows when cargo prices rise.

Subtract costs on one quantity basis to build a netback

A netback starts with value at a sale point and subtracts the disclosed costs and losses required to reach that point, producing an implied value upstream. For example, subtract shipping, regasification, terminal charges and loss value from a delivered LNG price, all expressed per delivered MMBtu. To compare the result with feed gas, also put liquefaction toll, plant fuel and upstream pipeline charges on that same basis.

The calculator below subtracts only two broad cost buckets from a destination price. A working model should split them into auditable lines. It should also distinguish a short-run dispatch decision, in which a committed capacity payment may be sunk, from full-cycle economics for a new project. A positive prompt-cargo netback cannot establish that a multi-year liquefaction investment earns its required return.

Bridge tonnes, cubic metres, MMBtu and GJ without a hidden constant

One LNG cargo may be described in metric tonnes, cubic metres of liquid LNG, standard cubic metres of gas, MMBtu or gigajoules. A tonne measures mass; a cubic metre of LNG measures liquid volume; a standard cubic metre of gas measures gaseous volume at defined conditions; and MMBtu or GJ measures energy. Mass-to-liquid-volume needs density, while physical quantity-to-energy needs gross or net calorific value. Both depend on composition, temperature or convention, so the cargo certificate should take precedence over a generic web average.

Separate fixed unit conversions from quality-dependent factors. The SI relationship of one kilowatthour to 3.6 megajoules is fixed. The MMBtu contained in one tonne of LNG or the Btu in one cubic foot of gas is not universal. US notation also commonly uses M for thousand and MM for million, making one MMBtu one million Btu. Confusing M, MM, Mcf and MMcf can introduce a thousand-fold error, so preserve the source notation exactly.

Store the source, as-of date, quality basis and unrounded conversion factor on every conversion line.

Audit one cargo through six reproducible steps

An LNG model should separate raw cargo information from assumptions. First fix loading terminal, receiving terminal, loading and delivery windows, ship, route, quantity, quality, price formula and currency. Only then enter capacity, cost, loss and elapsed time for each stage. When comparing prices, normalise them to the same delivery basis and energy unit. Match the foreign-exchange observation or average to the pricing period and retain its source.

1. 01Define the cargo

   Retain origin, destination, windows, quantity, quality and delivery terms.

2. 02Fix the energy basis

   Record gross or net heat, density, standard conditions and conversion source.

3. 03Build to liquefaction

   Separate feed gas, pipeline, treatment, plant fuel, toll and capacity.

4. 04Build the voyage

   Separate vessel, distance, days, charter, fuel, ports, canals and boil-off.

5. 05Build the receiving side

   Check unloading, storage, regasification, send-out, hub basis and tax.

6. 06Stress the netback

   Vary price, FX, voyage time, loss and outage, and write the update rule.

The exchange-rate drivers guide provides the currency layer. If LNG or gas is observed through a financial product, separately verify the reference and settlement with the CFD contract-specification guide. Use Macro Research Workbench to align hub, currency and published observations by date, then Financial Templates Hub to retain cargo assumptions, conversion certificates, routes and revisions. That trail lets a new reviewer reproduce the calculation rather than inheriting an unexplained spreadsheet constant.