Rebound to longer LNG Contracts

As shortages are looming on the LNG spot markets, the duration of LNG supply contracts is lengthening again. Asian countries are moving away from coal to natural gas for their electricity generation and thus increasing their demand for LNG in the years to come. 

For long-term contracts signed in 2018 the average duration of the contracts has increased, suggesting that LNG buyers are less confident they can secure all the LNG they need in the spot market. According to Rystad from Norway the market will tighten significantly in 2022 or 2023 and suggests a “heightened risk” of LNG shortages after then. Wood Mackenzie estimates that spot market demand for LNG among the top buyers of LNG globally could quadruple by 2030.

As tighter supplies are expected the Asian countries such as Japan Korea, China and Taiwan are increasingly signing longer contracts.

Developers are racing to build LNG export terminals to capture the growing demand. And in the race to capture that new demand, the US Gulf Coast is likely to emerge as a top contender.

Houston’s Cheniere Energy became the first company to export LNG from the United States in 2016 from its Sabine Pass complex. It recently began shipping LNG from its terminal near Corpus Christi. Dominion Energy of Richmond, Va., began exporting LNG from Maryland last year. The Houston pipeline company Kinder Morgan, which is completing a terminal in Georgia, and Freeport LNG are expected to start exporting LNG this year.

All these activities has the United States on track to become the third largest exporter of LNG in the world, behind Australia and Qatar.