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Thriving in LNG Market

Thriving in LNG Market

The LNG market is experiencing a new evolution in the market dynamics, and the LNG commodity is flourishing. This is mainly driven by the supply wave coming from the U.S shale gas. At least 50 Mtpa of new USLNG is uncommitted and needs to be traded.

As a result the market needs to be reconsidered, the traditional ways of doing the business need to be revised, and the LNG SPA is expected to experience a change in its terms and conditions.

Another factor that is pushing the market evolution is that Most of the LNG Long term contracts will end soon. LNG Suppliers needs to react to this fact, as most of the long term contracts will end soon. The competition on the oversupply will not just turn the market into buyers, but will lead to a change in the market structure as the buyers have learnt a lot from the previous contracts and they are offering more flexibility rather than the oil indexed long term contracts which are currently disappearing.

The expected terms and conditions that will change as a result of the market evolution can be listed as follows:

LNG Indexation

Most of the new gas indexations are changing from the normal oil-indexation and leaning towards a hybrid-indexation, in order to allow for the market competition and seasonality.

Destination

Most of the buyers are offering flexibility in the delivery point, a destination fee for the LNG delivery or they will define a region. they are even offering cargo diversion during the peak in other regions.

Commitment Period

The change in the commitment period is considered as a double edged sword; on one hand it will offer flexibility for the buyers as they will not be blocked from the market changes for a long period, and on the other hand the commitment period is considered as a factor that stimulates the natural gas exploration and liquefaction, so it has to be considered carefully in the new SPA.

 

 

Source

CWC Summit lesibon Dec. 2017

Emstream analysis