Opportunities and Challenges for Liquefied Natural Gas (LNG)
New Horizons in Environmental and Energy Law series
Chapter 6: The globalization of LNG: the evolution of LNG trade, pricing and contracts
The LNG markets originally developed as a niche business under which a relatively small number of sellers supplied specific regional markets with LNG under long-term contracts. Historically, there was very little trade in terms of a spot or short-term market and likewise, there were very few cargo diversions from the originally intended destination. As discussed in detail in Chapter 3, LNG trade has historically been divided into the Asia-Pacific and Atlantic Basin/North American regions with very little trade occurring between the two. For example, LNG trade data for the period 1995–2005 indicate that suppliers in both the Asia-Pacific and the Atlantic Basin regions dedicated over 99 percent of their supply to markets in the same region. In addition to trade being mostly regional, the vast majority of the cargoes to those regions were committed under long-term contracts that were generally required to underpin the financing and capital investment required for the capital-intensive LNG projects. Typical contracts normally specify delivery of gas to a particular location for a duration of 20–25 years.
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