03/25/2025

LNG Contracting Activity Rose in 2024 as Brent Pricing Comes into Focus

USAEE NEWSLETTER | SPRING 2025

BY JASON FEER

Global LNG buyers continued to show strong interest in LNG in 2024, inking 71 sales and purchase agreement (SPAs) encompassing just over 64 million tons (MMt), according to data from Poten & Partners, a leading LNG consultancy and business intelligence provider. The total is a slight decline from the 73 SPAs covering 66.5 MMt signed in 2023 but continues the recent trend of strong interest in LNG amid efforts to switch to lower carbon fuels.

Long-term contracts are critical to the development new LNG projects as most new capacity is financed via non-recourse project finance structures, and long-term contracts for most of the capacity of new projects are necessary in order to obtain the bank loans needed for construction.

Despite the strong level of contracting, just two new projects – Ruwais LNG in Abu Dhabi and Cedar LNG in Canada – reached final investment decisions (FID) last year, with a total capacity of 12.6 MMt/y.  

Projects in the United States, the largest LNG exporter in the world, were hindered by a decision by the Biden Administration to halt approvals of some export authorizations, uncertainty about the effects of trade policies from the incoming Trump administration as well as by rising liquefaction fees, spurred by high project costs. The number of SPAs signed by US exporters fell by 47% in 2024 to just 10.5 MMt, compared to 19.6 MMt in 2023

With more than 150 MMt of capacity under construction in a market of around 410 MMt/y, there will be ample supply for the next few years. But as it can take seven to ten years to get through the full regulatory, engineering, marketing and construction cycle for a new LNG project, there is concern that the slow pace of project development could lead to tighter markets and higher prices after 2030, once rising demand catches up with the new supplies coming into the market.

One notable feature of the 2024 contracts is the heavy concentration of deals that are priced against Brent crude prices (typically Platts Dated Brent). Such contracts are priced as a percentage of Brent – known as a slope. Current slopes are in the 12% range. The other major benchmark in long-term contracts is the US natural gas pipeline price, Henry Hub. But there are significant differences between when and how Brent and Henry Hub are used in the term LNG market.

Brent used to be the major benchmark for long-term contracts that were supporting the development of new liquefaction capacity. But it has evolved to become the dominant price market for shorter term deals, typically of 10 years or less. The major exception is in the Middle East, where Brent still prices long-term deals underpinning new capacity. 

Between 2020 and 2024, Brent-related deals accounted for 64% of LNG contracts that were 10 years or less, while the oil benchmark accounted for just 29% of deals longer than 10 years. And of these, deals in three countries – Qatar, Oman and the UAE – accounted for just over half.

During that same period, Henry Hub accounted 58% of deals longer than 10 years, reflecting the dominance of US projects during that time. By contrast, Henry Hub accounted for just 9% of deals shorter than 10 years.

The transformation of Brent into a shorter-term benchmark reflects the fact that volumes from many legacy contracts signed in the late 1990s and early 2000s that are expiring now and in the future, were priced against Brent. The loans on these projects have been repaid and sellers are able to sell volumes on more flexible terms, something welcomed by buyers who are facing uncertain demand as they work to reduce carbon emissions.

As Henry Hub reflects the market dynamics of the US natural gas pipeline market and Brent is a global marker that is familiar to many LNG buyers, particularly in Asia, many sellers and buyer prefer to sign shorter term deals on a Brent basis. In many respects, this new trend is teaching the old dog of the crude market new tricks.

Jason Feer is global head of business intelligence with Poten & Partners.