Long-term natural gas contracts evolution in the changing industry environment

Abstract

This paper analyzes the determinants of changes in duration of long-term gas export contracts signed in the period from 1963 to 2015 in order to make implications for the gas exporting countries. Our findings from two models suggest that contracts became shorter due to gas market liberalization process triggering in Continental Europe, technological development along gas value chain and increase in LNG fleet size. On the contrary, we found that FOB deals and contracts signed during the global recession period were on average shorter compared to others. The results imply that ongoing technological development along gas value chain, planned gas market liberalization in other significant markets may lead to the further decrease in the contract duration. In this context, gas exporting developing countries may need to take this into account in longer term planning in order to foster gas export revenue stability, demand security and lessening contract renegotiation and enforcement transaction costs.