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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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    References listed on IDEAS

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    1. 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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