Template-Type: ReDIF-Article 1.0
Author-Name:  Peter R. Hartley
Title:  The Future of Long-term LNG Contracts
Classification-JEL: F0
Volume:  Volume 36
Issue:  Number 3
Year:  2015
Abstract:  Long-term contracts have long dominated the international market for LNG. Since 2000, however, the proportion of LNG-traded spot or under short-term contracts has grown substantially, while long-term contracts have become more flexible. While long-term contracts increase the debt capacity of large, long-lived, capital investments by reducing cash flow variability, they also may limit the ability of the contracting parties to take advantage of profitable ephemeral trading opportunities. After developing a model that illustrates these trade-offs, we argue that increased LNG market liquidity resulting from a number of exogenous changes is likely to encourage much greater volume and destination flexibility in contracts and increased reliance on short-term and spot market trades. These changes would, in turn, reinforce the initial increase in market liquidity. 
Handle: RePEc:aen:journl:ej36-3-Hartley
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