Liquefied Natural Gas (LNG) is a cleaner-burning fuel primarily used for power generation, heating, and fueling. It plays a key role in electricity production, especially in countries transitioning away from coal, making it a vital component of the global energy transition.
When sanctions were imposed on Russia by several countries in 2022, major natural gas consumers, mostly in Europe, were left scrambling. Many could no longer buy sufficient LNG from Russia, creating an urgent need for alternative supplies to fill the gap.
As a result, the LNG spot market became highly active. Typically, LNG buyers and sellers operate under long-term sales and purchase agreements, where the seller commits to supplying a specified volume over 10–20 years, and the buyer commits to purchasing it – often under a take-or-pay pact. These contracts offer stability with fixed or indexed pricing mechanisms, protecting buyers from the volatility of the spot market. However, in times of supply shocks, such as the Russian invasion of Ukraine, activity in the spot market surges as buyers urgently seek new suppliers.
One company that rose to recognition during this period was Venture Global. Allegedly, the company prioritized spot market buyers over customers with long-term contracts, favoring those willing to pay higher prices. Venture Global, for its part, argued that its obligation to deliver LNG to long-term customers only begins when its facility reaches commercial operation, a milestone it had not yet officially reached. While technically within the terms of their agreements, this move angered long-term customers, who are now seeking damages.
A similar supply shock occurred in October 2022, when Nigerian Liquefied Natural Gas (NLNG), a reputable, major global LNG producer responsible for 3.8% of monthly global LNG supply, declared force majeure at its Bonny Island production facilities. Severe flooding disrupted the supply of feedstock gas, preventing NLNG from fulfilling its contractual obligations. From the perspective of a buyer, this was a devastating blow, especially in a year when global LNG supply was already tight due to the Russia-Ukraine crisis. A long-term contract should provide security, yet external forces rendered it meaningless, forcing buyers to join the frantic global search for replacement supply, often at much higher prices. While force majeure clauses exist for precisely these unforeseen events, and NLNG cannot be blamed for a natural disaster, the experience still left buyers in a difficult and frustrating position.
In the LNG terminal business, customer commitment is everything. LNG terminals are massive, long-term infrastructure projects that take 3–7 years to build. To secure financing, project developers must prove they have committed customers, as this reduces investment risk and guarantees stable, long-term revenue. This means that even before construction begins, when the terminal is still just an idea on paper, developers must convince buyers to sign binding contracts to purchase LNG. That’s a big ask. It requires trust, relationships, and a strong track record.
This is why customer satisfaction is critical. When LNG terminals seek to expand capacity and attract new buyers, their past actions will determine their success. In any business, but especially in energy, long-term relationships are built on trust. Those who honor their commitments and prioritize customer needs will secure future growth, while those who don’t may struggle when the market inevitably shifts.
The information provided in this article is for general informational purposes only and should not be construed as investment advice. The views and opinions expressed are those of the author and do not necessarily reflect the official policy or position of any organization. You should consult with a qualified financial advisor or conduct your own research before making any investment decisions. The author and the website are not responsible for any financial decisions made based on the content provided.
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