Why Japan’s utility firms want to pull the plug on destination restrictions for LNG supply
A hardened feature of long-term LNG contracts, the destination clause, is coming under renewed scrutiny as the quest for flexibility gathers momentum.
Energy Explained
Get the latest as our experts share their insights on global energy policy.
U.S. State Actions to Help Fossil Fuel Communities Navigate the Energy Transition
The world has committed to transitioning away from fossil fuels to avoid the most severe threats of climate change.[1] Communities across the United States rely on fossil fuel...
Podcasts
Hear in-depth conversations with the world’s top energy and climate leaders from government, business, academia, and civil society.
Inside the 2024 World Energy Outlook
Rising electricity demand. Heightened geopolitical tension. Fragility in energy markets. These are some of the big stories shaping the energy transition outlined in the International Energy Agency’s newest...
Events
Find out more about our upcoming and past events.
November 21, 2024
• 6:00 pm - 8:30 pm
est
Careers in Sustainable Startups
Gender disparities in entrepreneurship are stark. Only one in every three businesses is owned by a woman.
Event
• Pillsbury Winthrop Shaw Pittman
News
Shorter LNG contract terms may lead to future supply challenges
March 29, 2018
This article was originally published in Upstream Online.
Caroline Evans
29 Mar 2018 23:00 GMT Updated 5 Apr 2018 08:04 GMT
Share: Facebook Twitter LinkedIn E-mail Print
Buyers are increasingly seeking shorter terms and smaller volumes for their liquefied natural gas supply contracts, a trend that industry participants worry is creating challenges with supply down the road, writes Caroline Evans.
“One of the things that has us concerned is the lack of long-term deals that could be used to back-stop new capacity development,” said Jason Feer, head of business intelligence at energy and ship brokerage Poten & Partners.
“I think we really see potential problems in terms of supply constraints, price volatility coming out of this dearth of new contracts and I think in the absence of any sort of clever solution to some of these financing issues, the advantage is really shifting toward major oil companies, national oil companies, and companies already in the LNG business,” Feer added.
The trend is a far cry from the traditional model for sale-and-purchase agreements in the LNG industry, which has historically been fixed around 20-year terms.
Feer, speaking at the CWC LNG Americas conference in Houston, said that of the 40 LNG deals the company tracked last year, 30 were for terms of less than five years.
“That’s just extraordinary,” he said.
Akos Losz, a researcher at Columbia University’s Centre on Global Energy Policy, said that buyers are currently unwilling to sign long-term deals in part because of an expected supply glut that has not yet materialised.
In addition, with many markets becoming more liberalised, some buyers are seeing more competition domestically and are reluctant to enter long-term contracts.
“Because buyers are not willing to sign long-term contracts, suppliers are unable to access financing which is still required for the majority of LNG projects,” Losz said.
Losz also noted a sharp drop in final investment decisions for LNG projects, with only two having been taken in 2016 and a single one in 2017.
Feer predicts a dramatic change in the market over the next 11 to 12 years as current contracts representing about 200 million tonnes, or 80% of the current market, expire. He expects half of the contracts in 2030 to be renegotiated, and the other half to be new.
“You’re going to have a completely different market in eight to 10 years than you’ve had for the whole duration of the LNG business,” he said.
The volumes that expire will be from facilities that have already paid off their debt, meaning they will be able to sell more cheaply and more flexibly, Feer said.
“In some cases buyers aren’t even going to have the option to renew 20 years at the same volume, because a lot of these producers won’t be able to produce at the same volume as before,” he said.
“So we expect the vast majority of this 200 million tonnes will be renegotiated. Some of that will be renegotiated into long term, but a lot of that is going to get shorter and more flexible, and as far as we can see that’s a really fundamental restructuring of the LNG market.”
Related
More News
Why Japan’s utility firms want to pull the plug on destination restrictions for LNG supply
A hardened feature of long-term LNG contracts, the destination clause, is coming under renewed scrutiny as the quest for flexibility gathers momentum.
COP29 Panel discussion: Climate and conflict – Has the energy transition become synonymous with energy security?
Hosted to coincide and complement the main agenda of COP29, FTSessions @COP will host debates and discussions which will evaluate and reflecte on negotiations, announcements and agreements taking place during COP29.
News and Publications
by Robert (RJ) Johnston • Financial Times
• November 15, 2024
ترامب وبن سلمان.. أمام اختبار غزة والتطبيع
تزايدت الدعوات السعودية إلى تكثيف الجهود الدولية الرامية إلى إنهاء الحرب في غزة وتنفيذ حل الدولتين. فهل تنجح هذه الجهود؟ وما تداعيات ذلك على قطار التطبيع مع إسرائيل وعلى النفوذ السعودي في المنطقة؟
Relevant
Publications
Financing the Responsible Mining of Critical Minerals Using Thematic Bonds: Roundtable Summary
The mining sector continues to face headwinds in attracting the necessary investments to meet the growing demand for critical minerals in clean energy technologies.
The Key to a Successful Trump Energy Agenda Is Electricity
Rather than drill, baby, drill, it should be build, baby, build.
U.S. State Actions to Help Fossil Fuel Communities Navigate the Energy Transition
The world has committed to transitioning away from fossil fuels to avoid the most severe threats of climate change.[1] Communities across the United States rely on fossil fuel...