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The Future of Long-term LNG Contracts

Peter Hartley

The Energy Journal, 2015, vol. Volume 36, issue Number 3

Abstract: Long-term contracts have long dominated the international market for LNG. Since 2000, however, the proportion of LNG-traded spot or under short-term contracts has grown substantially, while long-term contracts have become more flexible. While long-term contracts increase the debt capacity of large, long-lived, capital investments by reducing cash flow variability, they also may limit the ability of the contracting parties to take advantage of profitable ephemeral trading opportunities. After developing a model that illustrates these trade-offs, we argue that increased LNG market liquidity resulting from a number of exogenous changes is likely to encourage much greater volume and destination flexibility in contracts and increased reliance on short-term and spot market trades. These changes would, in turn, reinforce the initial increase in market liquidity.

JEL-codes: F0 (search for similar items in EconPapers)
Date: 2015
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Related works:
Working Paper: The Future of Long-Term LNG Contracts (2014) Downloads
Working Paper: The Future of Long-Term LNG Contracts (2013) Downloads
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