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LNG contract optimization: The new challenge
Mar 20: LNG contract optimization has become a challenging new area for both suppliers and importers of LNG
8Overall, the LNG industry is bracing itself for a new era under buyer power and fueled by a new set of non-traditional buyers and buyer expectations, and traditional Asian LNG demand growth beginning to slow and a proliferation of new LNG supply projects entering the market.
The following characteristics are being noticed:
-- Increased demands from buyers for locational and lifting flexibility
-- Spot pricing embedded in long term contracts
-- Increase in spot market volumes, as buyers seek to diversify portfolio away from long-term contracts
--Push to reduced pricing formulas and inclusion of non-oil/alternate fuel pricing (e.g. HH)
--Burgeoning growth of hedgeable instruments and derivative markets (e.g. Asia)
-- Evolution of new derivative instruments (e.g. location swaps)
-- Anticipated increase in uncontracted volumes
-- Megamerger of Chubu-Tepco — setting the tone for a ‘buyer’s market’ and consolidation of interests with a need for sellers to respond in kind to buyer segmentation and exposure
-- Increased risk-taking from sellers to ensure volumes are placed. New buyers with reduced credit worthiness, requiring credit enhancement or taking on additional risk appetite, capacity and mitigation
-- Russian oversupply: threat of Russia swamping the European market with gas (impacting US LNG exports).
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