Royal Dutch Shell, the world's biggest 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.

According to the company’s first LNG Outlook released Feb 20, 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 two to three 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 that have more uncertainty in their market positions," Steve Hill, Shell's executive vice president for gas and energy marketing and trading, told journalists Feb. 20.

In its report, Shell said global demand for LNG reached 265 million tonnes per annum (mtpa) in 2016—enough to supply power to around 500 million homes a year. This included an increase in net LNG imports of 17 mtpa.

“Global LNG trade demonstrated its flexibility time and again in 2016, responding to shortfalls in national and regional gas supply and to new emerging demand,” Maarten Wetselaar, integrated gas and new energies director at Shell, said in a statement. “The outlook for LNG demand is set to grow at twice the rate of gas demand, at 4% to 5% a year between 2015 and 2030.”

Many expected a strong increase in new LNG supplies would outpace demand growth during 2016. Instead, demand growth kept pace with supply as greater than expected demand in Asia and the Middle East absorbed the increase in supply from Australia, according to Shell.

Shell also said that LNG prices are expected to continue to be determined by multiple factors, including oil prices, global LNG supply and demand dynamics and the costs of new LNG facilities. In addition, the growth of LNG trade has evolved into helping meet demand when domestic gas markets face supply shortages.