The global liquefied natural gas (LNG) market is now driven by the security of supply which is heavily reliant on long-term contracts and not spot market supplies.
This is according to the International Gas Union (IGU). In its latest World LNG report, the IGU noted that the energy crisis has put the security of supply back on the agenda, driving increased appetite for long-term LNG contracts in contrast to relying on spot market supply.
The report also stated that in 2022, over 70 metric tonnes (MT) of LNG contracts were concluded, more than double the average over the last five years.
Meanwhile, in the same year, 90 percent of LNG contracts concluded had a duration over 15 years in length, with 65 percent over 20 years in length, signalling a long-term commitment to LNG from buyers.
Recall that just last month, China National Petroleum Corporation (CNPC), signed a 27-year LNG purchase agreement for 4 million tons annually with QatarEnergy.
Supply will begin in 2026 and CNPC will take a 5 percent equity stake in a production train at Qatar’s North Field East expansion project.
So, monitoring LNG contracting activity is key to assessing upcoming LNG project approvals. According to the IGU report, a review of the LNG deals signed in 2022 showed that Asian markets driven by China and LNG aggregators dominated as off-takers with US exporters dominating as sellers.
According to the report, aggregators play an important role as they support LNG project development by building up global LNG portfolios which in turn generate future LNG demand through increased availability of supplies.
This is particularly important when building new markets for LNG imports which may not yet be ready to commit to gas and LNG through long-term contracts.
The report also highlighted Europe as a major off-taker, putting a stop to Russian gas supplies because of the ongoing Russia-Ukraine war.
“Since the start of the Russia-Ukraine conflict, LNG demand has spiked as Europe has slashed its import of Russian pipeline gas. In combination with a shift in LNG demand, this has created a double whammy for global LNG balances, increasing the need for new LNG supplies,” the report stated.