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Flexible friends

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.

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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 of the...

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