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The Future of Long-term LNG Contracts

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  • Peter R. Hartley

Abstract

Long-term contracts have long dominated the international market for LNG. Since 2000, however, the proportion of LNG-traded spot or under short-term contracts has grown substantially, while long-term contracts have become more flexible. While long-term contracts increase the debt capacity of large, long-lived, capital investments by reducing cash flow variability, they also may limit the ability of the contracting parties to take advantage of profitable ephemeral trading opportunities. After developing a model that illustrates these trade-offs, we argue that increased LNG market liquidity resulting from a number of exogenous changes is likely to encourage much greater volume and destination flexibility in contracts and increased reliance on short-term and spot market trades. These changes would, in turn, reinforce the initial increase in market liquidity.

Suggested Citation

  • Peter R. Hartley, 2015. "The Future of Long-term LNG Contracts," The Energy Journal, , vol. 36(3), pages 209-234, July.
    • Handle: RePEc:sae:enejou:v:36:y:2015:i:3:p:209-234
    DOI: 10.5547/01956574.36.3.phar
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    1. repec:aen:journl:1993v14-04-a01 is not listed on IDEAS
    2. Sophia Ruester, 2009. "Changing Contract Structures in the International Liquefied Natural Gas Market : A First Empirical Analysis," Revue d'économie industrielle, De Boeck Université, vol. 0(3), pages 89-112.
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    Cited by:

    1. Chi-Kong Chyong, 2015. "Markets and long-term contracts: The case of Russian gas supplies to Europe," Cambridge Working Papers in Economics 1542, Faculty of Economics, University of Cambridge.
    2. repec:osf:socarx:h2mv3_v1 is not listed on IDEAS
    3. Hamed Nikhalat-Jahromi & Panagiotis Angeloudis & Michael G H Bell & Robert A Cochrane, 2017. "Global LNG trade: A comprehensive up to date analysis," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 19(1), pages 160-181, March.
    4. Øglend, Atle & Osmundsen, Petter & Kleppe, Tore Selland, 2015. "Trade with Endogenous Transportation Costs: The Value of LNG Exports," UiS Working Papers in Economics and Finance 2015/5, University of Stavanger.
    5. Oglend, Atle & Kleppe, Tore Selland & Osmundsen, Petter, 2016. "Trade with endogenous transportation costs: The case of liquefied natural gas," Energy Economics, Elsevier, vol. 59(C), pages 138-148.
    6. Nikhalat-Jahromi, Hamed & Bell, Michael G.H. & Fontes, Dalila B.M.M. & Cochrane, Robert A. & Angeloudis, Panagiotis, 2016. "Spot sale of uncommitted LNG from Middle East: Japan or the UK?," Energy Policy, Elsevier, vol. 96(C), pages 717-725.
    7. Cho, Jaeyoung & Lim, Gino J. & Kim, Seon Jin & Biobaku, Taofeek, 2018. "Liquefied natural gas inventory routing problem under uncertain weather conditions," International Journal of Production Economics, Elsevier, vol. 204(C), pages 18-29.

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    • F0 - International Economics - - General

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