LNG contract and tender trends

Coronavirus has shaken up LNG contracting. With prices at record lows, buyers have sought levers to reduce contracted offtake creating pressure on existing contracts. Where terms allow, buyers have exercised downward quantity tolerances (DQT), cancelled cargoes and attempted to invoke Force Majeure. This is having consequences for new contract negotiations. Since February, the number of new contract agreements have been lower than in the same period in 2019 (thirteen Sales and Purchase Agreements (SPAs), and four non-binding agreements). Terms are being re-evaluated. Buyers and sellers are taking time to re-assess the contracted/uncontracted balance in their portfolios and re-consider new contract pricing. Buyers are continuing to push for lower oil slopes. Consequently, a number of recently signed long-term contracts to Asian markets have reportedly been priced at historically low oil indexation levels. The lowering of contract prices may allow for an increase in sales activity.