In an upcoming article in the October issue of the Wiley journal, Natural Gas & Electricity, NERA Senior Vice President Dr. Jeff D. Makholm explores the impact of the growing prevalence of liquid natural gas (LNG) export on the world gas market. There is such rapid growth in LNG production that long-term contracts are becoming less common, in favor of spot and futures trading. The evolution of the LNG market is following a similar pattern to that of the oil markets in the 1980s, leading to the question of whether the future holds a vision of an LNG gas market that forgoes long-term contracts and relies exclusively on spot and futures trading.

As attractive as that competitive worldwide vision is, there are three important and unfortunate barriers to its realization: cost, access, and politics. First, LNG transport carries with it high costs of the wrong kind: mostly sunk. Second, there is only limited access for gas producers and consumers to move gas from inland pipelines to ocean tankers. Finally, gas is unusually prone to political winds that bar competitive access (and also impede the competitive production of unconventional gas that much of the world has underfoot). As a result of these barriers, a liquid worldwide market for LNG is unlikely to emerge. Thus, we can expect long-term contracts, and idiosyncratic pricing and delivery clauses will continue to dominate the industry for the foreseeable future.

Makholm, Jeff D. (2016, October). Will LNG Rescue World Gas Market? Maybe a Little. Natural Gas & Electricity 33/3, ©2016 Wiley Periodicals, Inc., a Wiley company.