LNG contracts’ expiry to accelerate diversification of transactions

Oil&Gas Materials 7 October 2021 14:44 (UTC +04:00)
LNG contracts’ expiry to accelerate diversification of transactions

BAKU, Azerbaijan, Oct.7

By Leman Zeynalova – Trend:

About 150 bcm of active LNG contracts are set to expire between 2021 and 2024, with an additional 180 bcm expected to lapse by 2030, which will accelerate diversification of transactions, Trend reports with reference to the International Energy Agency (IEA).

‘This highlights the scale of the marketers’ challenge to reach new buyers. The Asia Pacific region, which is the largest current holder of contracted purchase volumes, is expected to account for more than 40 percent of expired contracts by 2024. On the seller’s side, the Middle East is expected to see the largest turnover,” reads the IEA report.

This process provides an opportunity for market participants to more closely align contract terms with buyer requirements in the years ahead, according to the agency.

“The adoption of more flexible contractual approaches, such as gas-to-gas indexation, hybrid formulae and hub pricing, has continued to gain ground in recent years. Although contracts with oil-indexed pricing still play a dominant role in total LNG trade, gas hub-linked pricing continues to increase. US-based projects have been the leading providers of flexible LNG contracts with gas-indexation and full destination flexibility. Gas hub-linked LNG contracts (especially to Henry Hub, but also to the Title Transfer Facility [TTF], the National Balancing Point [NBP] and the Japan Korea Marker [JKM]) are gaining a larger share than in previous years. The influence of major hub indices is extending beyond their markets, with some Henry Hub indexed LNG imported by South American buyers, and TTF indexed LNG imported by Asian buyers. This highlights the growing role of gas hub-linked LNG contracts in both long- and short-term markets.”

The development of carbon-neutral (or carbon offset) LNG transactions could further increase the diversity of LNG contracts in the future, according to IEA.

“Since 2019 over 20 carbon/GHG offset LNG cargoes have been delivered, mainly to Asian buyers. LNG projects that have carbon management technologies and low-carbon solutions are expected to be more competitive and appealing to buyers as the energy transition unfolds. The large volume of uncontracted LNG could accelerate these trends and serve as a catalyst for further diversification of LNG contracts in the coming years.”


Follow the author on Twitter: @Lyaman_Zeyn