LNG Trading Dropped Last year as Price Rally Deterred Buyers

(Bloomberg) -- The short-term market for liquefied natural gas shrank last year as record prices pushed away buyers of the cleanest fossil fuel. 

LNG delivered under contracts lasting four years or less amounted to 136.3 million tons in 2021, down 4.3% from a year earlier, a group representing the biggest consumers said in its annual report on Thursday. 

The decline is among the first signs of how the industry is tilting toward the more traditional way of buying and selling the commodity on longer deals. Europe's energy crisis and the war in Ukraine have made security of supplies the priority for many nations and utilities. 

War Forces Europe to Keep Long-Term Gas Deals It Once Resisted

At the same time, the average duration of long- and medium-term contracts increased to 13.6 years last year from 11.7 years in 2020, the group known as GIIGNL said in the report.

Spot LNG prices more than doubled last year as a colder-than-normal winter preceded a global supply crunch in the second half of the year. 

“The recent price hikes indicate a structural imbalance between demand and supply growth,” Jean Abiteboul, president of GIIGNL, said. “The looming price volatility has been exacerbated by the Russia-Ukraine conflict, and the current European energy crisis proves to be a stark reminder of LNG's vital role in ensuring energy security and economic stability.”

More from the report: 

• U.S., with its flexible shipments, was the biggest supplier of short-term LNG volumes last year, followed by Australia and Egypt. The segment made up 37% of overall trade in the super-chilled fuel, a decline from a record 40% in 2020.
• Actual spot volumes -- those that are delivered within three months from the transaction date -- made up 31% of total imports in 2021, or 116 million tons. That compares with 35%, or 125 million tons in 2020.
• By 2025, more than 120 million tons per year of new liquefaction capacity are planned to progressively come online, which should partly relieve tensions in the LNG market.

©2022 Bloomberg L.P.