This excerpt is from a report that is available to subscribers of Stratas Advisors’ Global LNG service and Global Energy Perspectives.

Long-term deals of 20 to 30 years have been the backbone of LNG global trade for as long as the industry has existed, but the seeming abundance of supply as of late has allowed buyers to push for shorter-duration contracts as supply becomes more liquid. As seen in the chart below, JERA, one of the world’s largest buyers, has shown little interest in renewing its long-term contracts at the same levels it has in the past.

While contract duration has gotten the lion’s share of coverage, destination flexibility has come to the fore as an important matter for buyers. Historically, in addition to locking in decades-long offtake agreements, buyers have also been required to agree to the delivery of cargoes to specific regasification terminals. Such clauses allowed suppliers to properly plan future cargoes and anticipate demand, allowing for a more orderly market balance.

With the recent announcement that KOGAS, JERA, and CNOOC—which purchased a combined 30% of the world’s LNG—intend to cooperate to obtain lower LNG prices and more overall favorable contracts, the longstanding destination clause seems to be squarely in the group’s crosshairs. Despite the strong bargaining position they occupy, removing these clauses will not necessarily be easy.

Allowing buyers that have over-purchased to resell into neighboring markets—for example, having Japan redirect a cargo to China—understandably makes large sellers uneasy. Such an allowance would have the effect of cannibalizing a portion of the market and would drive prices down further, a particularly painful proposition for suppliers at the moment.

On the other hand, buyers seem to be aware that waiving destination clauses will drive up contract prices.

While sellers will likely push back against this shift, the momentum is clearly on the buyers’ side and has been for some time now.

The huge wave of liquefaction trains coming online has caused shifts in pricing and contract terms across the globe.

With the LNG market being cyclical in nature, a number of those shifts—particularly relating to pricing—can be expected to experience recurring highs and lows as supply and demand rebalances.

But other shifts, such as this potential elimination of destination clauses, may have more staying power. As this industry matures and supply becomes more liquid and markets more global, fundamental changes like this one are a good bet to stay in place.