19
L
NG has existed for over
50 years as a mode of
transport for large amounts
of natural gas over long distances.
In 1964, the first commercial trade
between Algeria and the UK started.
In the beginning, the LNG trade was
essentially a few isolated, intra-regional
trades, with exporters being national oil
companies, often in cooperation with large oil
majors, and the importers were large utilities or pipeline
operators needing gas to feed the growing economies. Over
the next 50 years, the LNG industry grew into a global stage
with 245 million t of LNG being traded by a wide variety of
players, both big and small. In these 50 years, the basics
of the business have not changed much. LNG is exported
under a long-term supply contract from the LNG plant to an
import facility, often using LNG carriers built specifically for
that particular trade. These long-term LNG supply contracts
generally have a 20 – 25-year term and are often extended
by another five or ten years (when gas reserves allow). These
contracts are indexed to oil prices, usually with a floor price
and a ceiling price to protect the producers and the offtakers,
respectively. The LNG supply contracts used to be rigid in terms
of offtake volume flexibility and often contained take-or-pay
obligations for the buyer, as well as destination clauses, which
limited the ability to trade LNG volumes that were excess
to demand. All of this was done to ensure adequate returns
on the massive capital investments required to build the
LNG plants and the LNG carriers. This economic reality still
holds true today. Large LNG plants can cost up to anywhere
from US$15 billion to US$35 billion before cost overruns.
Alexander
Harsema-Mensonides,
Braemar, USA,
looks at how
the role of LNG is changing
from wholesale to retail
markets.
