Natural Gas World: Shorter LNG Contracts Unsettle Future Projects: Poten

Abdullah Alazzaz
14 February 2018: “The average duration of LNG offtake contracts signed in 2017 almost halved to 6.7 years, consultancy Poten & Partners said this week, describing this as the shortest ever recorded. It compares with an average duration of 11.5 years for LNG contracts signed in 2016.” ” ‘With many options for supply and uncertainty over future prices, last year buyers signed dozens of short- and medium-term contracts rather than commit to long-term deals,’ said Poten’s white paper, released February 13.” “Poten also reported that the average 2017 LNG contract’s volume declined to 0.66mn metric tons/yr, from 0.9mn mt/yr in 2016. Some contract duration and volume details are in the public domain. As a confidential adviser to LNG buyers and sellers, Poten has access to some additional data however; its paper can thus discuss trends while keeping specifics anonymised.” “Asked if the move toward oil-indexing was because a greater proportion of LNG contracts in 2017 involved Asian buyers and traditional LNG marketers, Poten’s head of business intelligence Jason Feer told NGW: ‘There doesn’t seem to be a regional component. I think the real reason is that most buyers don’t see any sense in taking additional risk by linking prices to markets or instruments that are illiquid. For a five year contract, management and everyone else is comfortable with Brent, while for longer terms, there is more incentive to try to figure out better ways to price.’ Poten also notes how several US projects are now offering a range of pricing alternatives to attract buyers. Tellurian last year, for instance, began marketing a plan, for its proposed Driftwood project in the US Gulf, whereby buyers would pay $1.5bn upfront for 1mn mt/yr of guaranteed LNG offtake for the life of the plant. The white paper can be requested from Poten here.” To read full article, click here.
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