(MENAFN- Gulf Times) Buying dozens of tankers of liquefied natural gas is going out of fashion.
Smaller buyers of gas, such as utility Vattenfall AB, are in the market to buy portions of cargoes. They are seeking to benefit from the biggest expansion of LNG supply since 2010 by negotiating flexible, shorter deals linked to varied price benchmarks. That's accelerating a move away from the multiyear, oil-linked contracts that dominated the past six decades of LNG trading.
A 2015 estimate by US LNG producer Cheniere Energy Inc that spot and short-term LNG trading would almost double to 50% of total trade by 2020 may even be beaten, Guy Smith, director of natural gas trading and LNG at Swedish state-owned utility Vattenfall, said in an interview at the European Gas Conference 2018 in Vienna.
The boom in contracts lasting less than three years is another sign that the LNG market is evolving rapidly, after earlier last month showing its flexibility by delivering the first Russian gas to the US. It would also help boost the revenue of underused European import terminals and probably spur the creation of short-term products as companies seek to make money from supplies currently locked into multiyear contracts, Smith said.
The expanding LNG trade is also bolstering financial deals.
'The LNG financial swaps market is growing almost exponentially and it will continue to do so for the next few years, Richard Bowler, lead LNG trader at Eni SpA's trading and shipping unit in London, said in an interview in Vienna.
Not all gas-market watchers agree the shift away from long-term contracts is guaranteed. Some financiers will favour those deals to guarantee loan repayments for multibillion dollar LNG investments, and should gas prices jump, some buyers will revert to multiyear agreements in an effort to fix lower rates, Geoffroy Hureau, secretary-general of Paris-based research group Cedigaz, said in an interview in Vienna.
'If the market starts to tighten, you'll see more medium and long-term contracts being signed, he said.
For now, supplies are plentiful although Chinese demand has been stronger than expected. Surging physical production from nations including Australia may help compress the premium paid by gas consumers in Asia over those in Europe, said Vattenfall's Smith. North Asian spot LNG prices are about 50% higher than UK hub rates.
'The market has been taken by surprise by how much China has increased its demand and the premium over Europe may hold if Asia continues to seek LNG, Smith said.
In the longer term, the global LNG market may become more focused on short-term prices and on trading hubs in a similar evolution to that of the UK National Balancing Point gas hub and crude markets. 'I have no doubt that you are going to see a commoditisation of the product and a greater usage of gas because, environmentally, there's a global will to move away from high CO2 emitting sources of production, the Vattenfall executive said. 'We want to power climate-smarter living.
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