Oxford – LNG Contracts in the Context of Market Turbulence and an Uncertain Future

The global LNG market experienced significant turbulence in 2022 as European gas buyers increased their LNG imports to offset the loss of Russian pipeline supply. The flexibility of the global LNG market, including the ability to purchase spot cargoes, allowed European buyers to access these supplies. This paper argues that the increase in LNG demand in Europe is not temporary but rather structural and expected to continue for the rest of the decade and beyond. European buyers need to balance the short-term need for gas supply with the long-term goal of decarbonization, while LNG export project developers will only add supply to the market with firm long-term contracts. The key question is how to reconcile the short and long-term needs of buyers and project developers to ensure a well-supplied market during the energy transition. The paper highlights the following conclusions: the global LNG market will remain tight until 2025, followed by a wave of new supply in the second half of the decade. However, the supply outlook beyond 2030 is uncertain. If global LNG demand continues to grow, additional supply will be needed, and it will require projects taking Final Investment Decision (FID) in the mid-2020s to launch by 2030. The uncertainty creates the possibility of several scenarios, including under-supply or over-supply. Aggregators will play a crucial role in reconciling the short and long-term needs of LNG industry players. Their willingness to sign new offtake agreements and the ability of LNG project developers to leverage those agreements will indicate the state and future of the industry.