LNG contract trends

Coronavirus has shaken up LNG contracting. Record low prices in 2020 meant buyers had sought levers to reduce contracted offtake creating pressure on existing contracts. Where terms allow, buyers 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 has been in recovery since H2 2020 as a 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, although this has not yet materialised in Q1 2021.