Shell says new LNG buyers want shorter, smaller contracts

LONDON (Reuters) -- Royal Dutch Shell, the world's biggest liquefied natural gas (LNG) trader following its takeover of BG Group last year, said new LNG customers that will drive demand are looking for shorter and smaller contracts.

Photo Courtesy of Shell.

Shell expects much of new LNG demand to come from countries that want to replace declining domestic gas production -- which has already happened in Egypt and Pakistan -- and those countries that are looking at LNG to complement pipeline and domestically produced gas, like China or Morocco.

Shell said it sold LNG into six new markets in 2016, compared with a typical annual rate of 2-3 new national buyers, as countries like Egypt, Pakistan and Jordan chose to import more gas to meet domestic consumption needs.

The new buyers typically need more flexibility in their gas supplies due to uncertainty over demand evolution, meaning the historical contract structure of large volumes sold in multi-decade deals is changing.

"On average, term contracts are getting shorter and smaller and that's in response to the introduction of new buyers to the market who have more uncertainty in their market positions," Steve Hill, Shell's executive vice president for gas and energy marketing and trading, told journalists on Monday.

New potential customers this year are Jamaica and Malta, which have built floating storage LNG units, as well as Ivory Coast, where Shell owns a small stake in a new LNG import project, Hill said.

Shell's LNG sales rose 45% last year to 57.11 MMt.

Reporting by Karolin Schaps; Additional reporting by Ron Bousso. Editing by Jane Merriman

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