By Anne-Sophie Corbeau, Research Fellow, KAPSARC (Saudi Arabia)
The Liquefied Natural Gas (LNG) industry is going through the largest increase in LNG capacity ever, equivalent to twice the LNG export capacity of Qatar. These new supplies are arriving in a market environment significantly different in terms of supply, demand and prices from what the industry anticipated when investment decisions were taken. Slower than expected LNG demand growth is forcing sellers to look for new, more riskier markets. But a potential market squeeze beyond 2020 is currently the greatest worry of investors and buyers alike, as very few projects have been sanctioned since mid-2015. Buyers have become more demanding about what they are ready to accept in terms of contractual conditions. Their demands focus on three different aspects: pricing mechanisms, flexibility and final destination clauses. Sellers have become increasingly worried on how far negotiations could be pushed and that the sanctity of long-term contacts could become under threat.