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01 December 2002
Long-term LNG shipping contracts are out, and flexible arrangements are in. This changing dynamic requires a new look at LNG projects. By Terry A. Newendorp, Ilse Pineda Achtner, and Xiaochao Wang, Taylor DeJongh.
Forced with dramatically increasing numbers of potential LNG
suppliers, LNG buyers are increasingly reluctant to sign long-term
take-or-pay contracts with prices indexed to oil. LNG buyers today
seek shorter term flexible contracts based on natural gas prices in
the final market. This will have a direct impact on the financing
of new LNG projects due to changes in the risk profiles of projects
that follow the new LNG trend. Below is an analysis of the
traditional and the new LNG trades, including their different risk
profiles, and the financing impacts of each structure. Structural
differences in two important gas markets, the US and European, are
evaluated in their different risk profiles as LNG destinations.
Traditional vs. New LNG Trade
Traditional LNG trade is based on long-term take-or-pay Gas Sales
and Purchases Arrangements (GSPA) with standard commitment terms of
over 20 years1 and with pricing formulas fixed for the entire life
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