New supply triggers shorter tendency in LNG contracts – RasGas

The current global LNG supply outlook means producers are more likely to accept long-term contracts that have a shorter-than-usual duration, RasGas chief marketing and shipping officer Khalid Sultan Al-Kuwari said at the World LNG Summit in Paris on 19 November.

“Suppliers are more likely to accept shorter, long-term contracts based on the new supply that is being developed but if projects are delayed there could be a return to the usual long-term commitments,” Khalid said.

The comments, which came during the first session of the conference, had a predominantly bearish tone based on recent oil and spot LNG price moves and upcoming planned and projected LNG production.

Khalid said the overall development of pricing was more important than its type of indexation within contracts and noted the growing role of flexibility in deals between sellers and buyers.

“If you look at hybrid prices there is a comfort to buyers who want to diversify, but this comes with risks and there is little doubt the formulae will evolve as buyers and sellers work on a balanced approach,” he said.

Elements of flexibility such as annual tolerance profiles and destination flexibility are a key area, but this comes at a price and must be factored into a contract agreement, he said.

Speakers repeated the comments of previous conferences when discussing a mixture of US Henry Hub, oil and Asian spot indexation within supply contracts.

The fall in oil prices in recent months has wiped about $3.50/MMBtu – or $12m – from the value of a cargo priced on an oil-link, Pat Roberts, associate director of energy specialists CWC Group said.

“Even if oil rises back up, underlying price inflation is lower than new supply costs and is a problem for new final investment decisions… we had 600m tonnes of new projects listed last year and now we have 800m tonnes against a demand growth of 150m tonnes,” Roberts said. She estimated that 70% of long-term contracts were currently based on an oil index.

A rise in LNG imports to Europe was expected from 2015 to 2017, said Philip Olivier, president of Paris-headquartered GDF SUEZ but European regasification use would remain at or below 50% capacity in the years to come. Edward Cox