LTC were and still are the cornerstone of the European gas supply market. Decreased demand for natural gas due to the economic slowdown, US shale gas increase and LNG growth in Qatar has created gas glut in 2010-2011 that has challenged the LTC pricing mechanisms (usualy Oil based in the EU). LTC pricing needs to be adjusted to new market conditions.
Distribution of risks:
- the buyer takes the volume risk (NaturalGasTakeOrPayObligation).
- the seller takes the price risk and relies on market reflective price provisions.
Duration: 25-30 years
- price indexation based on competing fuels (NaturalGasOilParity) and entitlement to periodic renegotiation to adapt pricing and overall contract situation to market developments.
- entitlement to periodic renegotiation to adapt pricing and overall contract situation to market developments (price review)
- support long term investments in the supply chain
- abolition of destination clauses,
- unbundling rules
- new capacity allocation and congestion management rules and
- commitments of EU gas importing companies regarding release of entry capacities.