Commercial risk in LNG is not something to be reacted to; it must be designed for, allocated properly, monitored continuously, and governed rigorously.
Businesses that succeed are not the ones with perfect strategies; they are the ones with commercial structures built to absorb shocks, align counterparties, sustain performance, and capture value across the entire LNG value chain – even when market circumstances are tough.
Highlights
- Historically disputes were managed between long-term counterparties as part of the normal process of managing ongoing relationships, but in recent years, increases in the number of players and diversification in the types of players have led to a breakdown in traditional, relationship-led approaches
- In LNG contracting, risk allocation is ultimately driven by the value each party assigns to that risk and the cost of managing any resulting asymmetry. Risks are not simply mitigated or shifted; they are priced, negotiated, and optimised
- If you’re an LNG export project managing multiple offtakers or multiple upstream supply sources, a lock of cross-value chain thinking means you will be the one to suffer the consequences if something goes wrong and the management structure isn’t in place to deal with it
- When flexibility works, it is one of a contract’s greatest assets. When it doesn’t, it’s the fastest path to conflict
