LNG contract trends

Coronavirus has shaken up LNG contracting. With prices at record lows in 2020, buyers had 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 was having consequences for new contract negotiations with the number of new contract agreements have been lower in 2020 than in 2019. However, contracting activity showed signs of recovery in H2 2020 as new competitive pricing paradigm emerged. Most recently signed LNG-term contracts have a lower indexation of between 10-11%. Record high prices over the winter period of 2020/2021 could spur greater contracting activity in 2021 and upward pressure on indexations, though this could be offset by rising oil prices as demand begins to recover.