Frontiers in Earth Science (Jan 2023)

Value of long-term LNG contracts: A theoretical and empirical study

  • Xiaoning Xia,
  • Xiaoning Xia,
  • Rui Wu,
  • Yan Liu,
  • Jinzhou Wu,
  • Tiankuo Lu

DOI
https://doi.org/10.3389/feart.2022.1058592
Journal volume & issue
Vol. 10

Abstract

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With the rapid development of short-term and spot trade of liquefied natural gas (LNG), the natural gas market is gradually evolving from regionalization to globalization. At the same time, the existence and rationality of long-term LNG contracts have become increasingly controversial. To explore the value of long-term LNG contracts in the process of natural gas market globalization, this article constructs a two-stage game model and applies China’s LNG trade data in 2018 to the model. The study shows that, compared with complete import of short-term LNG, even if the long-term LNG contracts do not have price advantages, importing an appropriate amount of long-term LNG may help to increase the total LNG imports, reduce the price of LNG, and thus improve import benefits. Besides, a moderate amount of long-term LNG contracts is conducive to the establishment of a stable and flexible natural gas supply system and the security of natural gas imports. Therefore, natural gas importers should not underestimate or even ignore the value of long-term LNG contracts while actively participating in short-term and spot trade of natural gas.

Keywords