LNG suppliers are asking customers to pay much higher rates for new long-term contracts, as the global effort to cut Russian imports is expected to keep the market on edge over the next decade.
Top industry suppliers are offering 10-year contracts starting in 2023 at rates that are about 75% higher than the price of similar deals signed just last year, Bloomberg reports, citing traders familiar with the matter.
Volatile spot prices and expectations of a worsening supply deficit prompted importers to negotiate long-term deals.
I jumped natural gas prices Immediate flows from Asia to Europe reached record levels last month, as the war in Ukraine exacerbated an already tight market situation. Prices are expected to remain high for years as Europe boosts imports of liquefied natural gas to reduce dependence on Russian pipelines.
The cost of supplying contracted LNG linked to the price of oil – a practice dating back to the 1970s – is currently much lower than the cost of purchasing a spot market shipment. But that discount is shrinking as available supplies dwindle.
War, energy transition and severe weather, along with rising demand, are creating a period of turmoil that is reducing supply like never before in the natural gas sector. The global LNG market could be short of nearly 100 million tons a year by the middle of the decade if the world moves to ban Russian gas, according to a Credit Suisse report last month.
Long-term, high-priced LNG contracts threaten to raise the cost of electricity and heating, adding to inflation concerns.
According to Bloomberg, suppliers, including major producers and players, are offering to sign 10-year LNG deals starting next year at 16%-18% of the price of Brent crude. For comparison, Qatar was signing supply agreements for Chinese customers in the low 10% range early last year.