Register with us today

and in less than 60 seconds continue your access to:Latest news headlinesAnalytical topics and featuresCommodities videos, podcast & blogsSample market prices & dataSpecial reportsSubscriber notes & daily commodity email alerts

Already have an account?

Log in to register

Forgot Password

Please Note: Platts Market Center subscribers can only reset passwords via the Platts Market Center

Enter your Email ID below and we will send you an email with your password.

  • Email Address* Please enter email address.

If you are a premium subscriber, we are unable to send you your password for security reasons. Please contact the Client Services team.

If you are a Platts Market Center subscriber, to reset your password go to the Platts Market Center to reset your password.

In this list
Natural Gas

Industry casts doubt over future of long-term LNG supply contracts

LNG | Natural Gas | Natural Gas (North American)

Uncertainty remains for US LNG project developers following initial China trade deal

LNG | Natural Gas | NGL

Platts LNG Alert

Capital Markets | Electricity | Energy | LNG | Natural Gas | Shipping | Leveraged Finance & High Yield | Materials | Building & Construction | Financial Services | Banking | Infrastructure | Structured Finance

Infrastructure Summit

LNG | Natural Gas

Ukraine sees role in EU gas market for its surplus storage capacity: Naftogaz

Industry casts doubt over future of long-term LNG supply contracts

Amsterdam — The expected growth in the global LNG market in the coming years will mean buyers can do without long-term contracts, leading industry players said late Tuesday at the Flame conference in Amsterdam.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

Instead, with growing volumes of spot LNG available, buyers can either look to shorter-term contracts or the spot market to meet their needs.

Charif Souki, chairman at US LNG developer Tellurian Inc., said long-term contracts in the LNG sector would soon be a thing of the past.

"The market has become sufficiently liquid today that a buyer does not need to enter into a long-term contract," Souki -- who was the founder of US LNG pioneer Cheniere Energy -- said.

He said that in the next two years, some 20 cargoes would be available every day on the spot market, or 5,000 cargoes a year. "You're never very far from a cargo," he said.

"There is no incentive, no imperative to have a long-term contract," Souki said, unless a buyer is a large utility that needs the guarantee of supply.

"You have to prepare yourself for the next generation which is a transition to a true commodity business where you don't need a long-term contract. With a 50 Bcf/d market, with LNG on the water, I doubt very much the necessity for long-term contracts is going to remain for much longer," he said.

Tellurian is planning to build the 26 million mt/year Driftwood LNG plant and has tried different methods to market its capacity, including offering to sell its future LNG at a fixed $8/MMBtu price to Japanese buyers.

However, no companies took up the offer.

"We've tried fixed costs, variable costs, Henry Hub-plus, and now we're trying to find a new business model," Souki said.


Mark Gyetvay, CFO of Russia's Novatek, agreed that the long-term contract was coming under pressure, saying that Novatek was looking at a combination of different contract lengths to offer prospective buyers from its planned Arctic LNG-2 project.

These, he said, could include some spot, short-term and medium-term arrangements.

Total's head of gas, Laurent Vivier, meanwhile, said the long-term contract could still have a role to play, but said that size was the crucial factor.

"LNG is a commodity 'in the making'," he said. "There could still be a need for long-term contracts to help finance new LNG projects."

But, he said, a company needed to be global and have a big portfolio, and that final investment decisions for new projects depended on that visibility.

Only one FID on a new LNG supply project was taken in 2017 -- Eni's floating LNG project Coral in Mozambique -- and none has been taken yet in 2018.

Andree Stracke, chief commercial officer at Germany's RWE Supply & Trading, said his company would not be willing to take the risk of a long-term LNG import contract.

"A 10-year horizon is the most that we can risk manage," Stracke said.

He also said optionality was a key consideration in contact negotiations, but that it is difficult to put a value on optionality in a contract.

Souki agreed, saying both sides wanted optionality so that sellers could try to optimize sales during high-price, high-demand periods, while buyers would look to offload their commitment when they didn't need a cargo.

--Stuart Elliott,

--Edited by Jonathan Fox,