OPINION : “Lessons in Gas and LNG Governance: ‘Security of Supply’"

In the LNG business, purchasing at the lowest price is not necessarily the best decision. Conversely, entering into a long-term contract when prices are high can leave a company burdened with expensive contractual commitments for years. It is between these two extremes that an LNG procurement strategy must be developed.

This issue was among the interesting topics discussed by Fabian Kor of SEFE at The 5th IndoPacific LNG Summit 2026 in Bali in July 2026. His presentation was titled "Operating in a Constrained LNG Market: Procurement and Risk Strategy."

One simple yet fundamental question emerged from the presentation:

What is the "right price" for security of supply?

How much should we be willing to pay to ensure secure LNG supplies?

This question is becoming increasingly relevant for Indonesia as gas and LNG are expected to play a greater role in maintaining the reliability of the national energy system.

From "Point A to Point B" to an LNG Portfolio

The LNG world has changed. The traditional model was relatively simple: a producer had LNG, a buyer needed LNG, and a contract was established to move it from Point A to Point B.

LNG molecules moved from one project to one market. However, price volatility, supply-demand uncertainty, and rising geopolitical tensions have made this approach increasingly inadequate.

SEFE presented an approach that more closely resembles a global LNG portfolio. The company has an LNG portfolio of approximately 10 MTPA, with more than 180 cargoes delivered throughout 2025, seven LNG carriers, more than 50 regasification slots in France and Germany, and medium- to long-term LNG sales in Asia exceeding 3 MTPA.

What is interesting is not only the size of this portfolio, but also how its supply sources and markets are structured. The map presented showed supply sources distributed across various regions: approximately 2–3 MTPA from the US Gulf Coast, 1 MTPA from Canada, 1.4 MTPA from Cameroon through 2026, 1 MTPA from the Middle East, 0.4 MTPA from the Pacific, and 2 MTPA from Argentina.

On the demand and regasification side, SEFE has positions in Germany, Dunkirk, the Mediterranean, India, East Asia, and Southeast Asia. The message is clear: do not put too many LNG eggs in one basket.

SEFE outlined six principles in its contracting approach: diversifying global supply sources, limiting volumes from any single project or country, complementing home-market requirements with global sales, managing indexation and exposure, maintaining flexibility through FOB/DES arrangements, and ensuring sufficient portfolio materiality.

All of this is supported by trading, optimisation, risk-management systems, activities across different contract tenors and volumes, and a network spanning London and Singapore.

This is where LNG evolves from merely a molecules business into a portfolio business.

Utility, Portfolio Player, or Trader?

There is another development that I find interesting. The boundaries between traditional utilities, portfolio players, and traders are becoming increasingly blurred. Traditionally, utilities focused primarily on meeting physical requirements: how much gas customers needed, how much LNG had to be contracted, and when vessels needed to arrive. Traders, meanwhile, focused more on arbitrage and trading profits.

Today, these functions are converging. Fabian's presentation illustrated the convergence of physical demand, LNG supply, shipping, optimisation, and trading. When internal capabilities are insufficient, companies establish commercial cooperation agreements, trading partnerships, and even joint ventures.

One example mentioned was a trading cooperation agreement involving transactions exceeding 2 MTPA, including geographic swaps between demand centers to strengthen security of supply. For Asian utility companies, Trading & Optimisation (T&O) capabilities are therefore no longer merely supplementary activities. They are becoming core competencies.

Will the Era of Cheap LNG Return?

This was another particularly interesting part of the presentation. Fabian compared the 2015–2019 period with potential market conditions during 2029–2034. Between 2015 and 2019, more than 140 MTPA of additional LNG supply entered the market, primarily from the United States and Australia. Although China's demand increased, even that growth was unable to fully absorb the additional LNG supply.

Consequently, Asian spot LNG prices remained in the single-digit US$/MMBtu range for most of that period. Approaching the 2030s, the world may face an even larger wave of LNG supply.

The presentation projected more than 200 MTPA of additional supply from sources including the United States, Qatar, Canada, Indonesia, and others.

At the same time, demand conditions are also changing. China's growth could slow, while the country gains more options within its energy mix. Solar power is becoming cheaper, battery storage is developing significantly, energy efficiency is improving, some nuclear power plants are restarting operations, and electrification is expanding.

In other words, LNG is not only competing with other LNG supplies. It must also compete with coal, renewable energy, and renewables combined with battery storage.

Three research houses cited in the presentation even projected that Asian spot LNG prices could remain in the single-digit range for approximately five to six years during the coming period.

Does this mean buyers should simply wait? Not necessarily. Because the World of 2030 Is Not the World of 2015. There are several structural differences.

Europe is now more dependent on LNG. Coal retirement continues. The growth of Artificial Intelligence and data centers is increasing electricity demand. And the factor most difficult to capture in a spreadsheet is "geopolitical disruption."

The Russia–Ukraine war provided a costly lesson in this regard. Geopolitical crises can alter the global LNG balance very quickly. This gives rise to a classic pattern in the LNG market.

When the market is tight:

1. "Wants LNG at any price."

2. When supply is abundant:

3. "Refuses >12% DES."

But when a crisis occurs: "Wishes they signed earlier."

These are the three types of buyer behavior that Fabian's presentation portrayed humorously, yet accurately. This cycle of fear and regret continues to repeat itself in the LNG industry.

The Mystery of the 12 Percent Brent Slope

In oil-indexed LNG contracts, one of the most frequently debated figures is the Brent slope. Fabian questioned whether Brent-linked DES contracts essentially fall within a range of approximately 10.X% to 14.X%.

For plain-vanilla DES contracts commencing around 2029/2030, indications were around the mid-12% DES level. End-users with a single destination and no seller flexibility or optionality could obtain a discount.

Meanwhile, some second-tier Chinese buyers were reportedly reluctant to commit to slopes above 12% DES beginning in 2029, anticipating a potential supply glut.

The logic is easy to understand. Why lock in LNG today at a 12.5% Brent slope for 15 or 20 years if spot LNG prices are expected to become cheaper in a few years? But this is where the issue becomes considerably more complicated.

A 12.5% Contract: Expensive or Actually Insurance? Fabian presented an interesting simulation. Suppose a buyer signs a DES LNG contract with a 12.5% slope, commencing in 2029/2030.

Based on two of the three long-term price curves from research providers shown in the presentation, the contract could remain "underwater" for six to eight years, despite having a total duration of 15–20 years.

In other words, for several years, the buyer might see spot prices that are lower than its contracted LNG price. Management would inevitably ask: "Why did we sign such an expensive contract in the first place?"

But the opposite question must also be asked: "How confident are we in that long-term price curve?"

A forecast is still a forecast.

Models can calculate supply and demand based on planned projects, economic growth, normal weather conditions, coal retirement, renewable energy penetration, and other assumptions.

However, models struggle to predict the next war, the closure of shipping routes, embargoes, disruptions to LNG facilities, or major geopolitical crises.

Fabian then raised a far more important question: "Would you risk leaving it to spot/strip procurement?"

What if events similar to the 2022 Russia–Ukraine crisis or the 2026 Middle East crisis were to occur again? This is where long-term contracts provide value that is often overlooked in simple price calculations. That value is called: "Security of supply."

An LNG Contract Is More Than Just the Price of Molecules

I believe this is a very important lesson. When comparing LNG contracts, we often focus too heavily on US$/MMBtu or the Brent slope. In reality, an LNG contract represents a package of risks.

1. There is price.

2. There is volume.

3. There is destination.

4. There is shipping.

5. There is flexibility.

6. There is optionality.

7. There is indexation.

9. There are diversion rights.

10. There are price-review provisions.

11. And, of course, there is supply certainty.

Fabian's presentation also emphasized the importance of examining whether an LNG contract has a back-to-back structure with downstream contracts using the same indexation plus a margin, how much contractual flexibility or optionality can actually be monetized, and how price-review triggers operate when market conditions change materially.

Therefore, two contracts with identical 12.5% slopes do not necessarily have the same economic value. Optionality has value. Flexibility has value. Security has value. And each comes at a price.

Lessons for Indonesia

For me, this presentation is highly relevant to Indonesia's gas and LNG governance. Indonesia occupies a unique position. We are an LNG producer, but at the same time, domestic gas demand, particularly for power generation and industry, requires an increasingly flexible supply system.

Therefore, we should not view LNG merely as a commodity that must be rigidly transported from one source to one buyer. We need to begin thinking within the framework of a National Gas & LNG Portfolio.

This means that long-term, medium-term, short-term, and spot contracts are not mutually exclusive choices. Each serves a different function within the portfolio.

Fabian's presentation firmly concluded that there is no universal formula for the ideal proportions of LT, MT, ST (Long-, Mid-, and Short-Term) contracts or spot procurement.

Every portfolio reflects different risks and business objectives. Contracting strategies must therefore follow business objectives rather than simply following market consensus. This is important.

If the baseload requirements of the national electricity system must be met every day, it would certainly be unwise to leave those requirements entirely dependent on the spot market.

Conversely, locking in all requirements for 20 years could eliminate flexibility when market conditions change.

Therefore, the question is not whether to choose long-term contracts or spot purchases.

The real question is: How much volume should be secured, how much should remain flexible, and how much should deliberately be left open for market optimisation?

From "Security of Supply" to "Security through Portfolio"

There is a paradigm shift worth considering. Until now, "security of supply" has often been interpreted simply as having long-term LNG contracts.

In my view, that definition needs to be expanded. Modern security of supply is built through a portfolio comprising diversified supply sources, multiple suppliers, a combination of FOB and DES contracts, shipping capabilities, terminal access, storage, pipeline networks, destination flexibility, contracts of varying tenors, spot exposure, and trading and optimisation capabilities.

This is precisely what SEFE's model demonstrates. And as LNG becomes an increasingly "fungible" commodity, competitive advantage is gradually shifting.

It is no longer only about who has access to the molecules, but who can optimise those molecules most effectively.

Fabian also emphasized that trading and optimisation require systems, talent, risk management, and performance metrics that differ from those of traditional utility or Exploration & Production (E&P) businesses.

In my view, this is one of the most important messages for Indonesia's gas industry.

1. We have molecules.

2. We have LNG plants.

3. We have receiving terminals.

4. We have FSRUs.

5. We have a large market.

But the next question is: Do we already have sufficiently strong portfolio, trading, optimisation, and risk-management capabilities to connect all of these elements?

Is It Better to Have Too Much Than Too Little?

In the closing section of his presentation, Fabian shared several particularly striking statements: "It's easier to sell excess LNG than explain a shortage.” And: "A cargo in hand is worth 2 in the spot market."

Of course, this does not mean we should purchase as much LNG as possible without considering economic viability. The underlying message is much more substantial. In an energy system, reliability has economic value.

An excess cargo can still be sold, swapped, diverted, or optimised, particularly when trading capabilities are available.

However, an LNG shortage when power plants need fuel could mean that power plants shut down, industries lose their gas supply, electricity services are disrupted, and the resulting economic costs may ultimately be far greater than a price difference of just a few dollars per MMBtu.

Therefore, the measure of successful LNG procurement should not be limited to: "Did I buy at the lowest price?” A more appropriate measure would be: "Can my portfolio deliver energy when it is needed, at an acceptable level of risk and cost?"

That, perhaps, is the essence of security of supply.

From Fabian Kor's presentation, I took away one simple lesson: in the LNG business, the cheapest contract is not necessarily the most beneficial, while a contract that appears expensive is not necessarily a poor decision.

Because what we are actually purchasing is not just LNG. We are also purchasing certainty.

And in an energy world increasingly characterized by volatility and geopolitical uncertainty, that certainty comes at a price. The remaining question is: "How much should we be willing to pay for that 'security of supply'?"

-----------------------

Bogor, shortly before Duha prayer

Thursday, August 13, 2026