LNG long-term contracts are not dead, say US LNG exporters

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Caroline Gentry, Senior Energy Analyst, dmg events
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Long-term contracts for LNG can still be secured according to US LNG exporter Cheniere, who announced a new 24-year deal with Polish state oil and gas company, PGNiG, at the EAGC/CEE Conference in Berlin last week.

Cheniere has delivered 475 cargoes as of the end of October, said Andrew Walker, Cheniere’s VP of Strategy.

“Long-term contracts are not dead. We are continuing to sign them, so they don’t look dead to us. Eight of our 18 buyers are European, ten if you count trading houses based there.”

“There is still a significant appetite in Europe and Asia for long-term contracts,” agreed Tom Earl, Chief Commercial Officer, Venture Global LNG. “As well as recent announcements by Cheniere and Venture Global with PGNiG and others, there’s more news to come in the coming weeks and months.” Venture Global will announce its final investment decision in the next few months, Earl added.

Large-scale LNG export terminals still require some degree of longevity in contracts, although the mix is evolving to a more balanced portfolio. Buyers also need the security of long-term contracts, said Andree Stracke, Chief Commercial Officer (Origination & Supply) RWE Supply & Trading.

“In March prices shot up and LNG was not available at short notice, in the UK, LNG was not available for six days. So we are trying to build some long-term contracts. You need to find the right portfolio between short, medium and long-term contracts.”

In a remarkable turnaround, the US is vying to become the world’s largest gas exporter in competition with other major exporters Qatar, Russia and Australia.

“The US has exported 40 bcm of LNG since February 2016 but we have only scratched the surface of our capabilities... The US is truly open for business.” said Clark Price, Minister Counselor for Economic Affairs, US Embassy in Berlin.

But the short-term market is still not liquid enough to say LNG is fully commoditized, and oil indexation remains a major component, especially in Asia. Further, transportation time and shipping constraints mean LNG may not always be available to meet immediate demand.

“You still need time to transport LNG from A to B,” said Jean-Baptiste Dubreuil, Senior Natural Gas Analyst, International Energy Agency. “Short-term LNG is just one tool in the toolbox of security of supply. We have a concern that the availability of the shipping fleet will be an issue even before the availability of liquid LNG supply in future.”

Asia has had a voracious appetite for LNG but that appears to be slowing, and Europe may finally see increased deliveries. “China gas consumption will go down from 15% growth this year to 9.4% next year as prices go up and domestic production increases,” said Zhu Chen, Managing Director of consultants SIA Energy. “Thanks to China the oversupply issue was delayed by one to two years but now we may be facing it.”

But new pockets of demand are springing up in previously inaccessible markets thanks to FSRU technology, and so Europe’s reliance on LNG may still be limited. “FSRUs have opened up more demand in new markets and the forecasted glut never happened. Europe has the potential of losing its niche of being the market of last resort as it’s no longer the market of last resort,” said Denis Korolev, Managing Partner of LNG trading platform octoLNG.

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