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Long-Term Contracts for Crude Oil imports into Costa Rica: A General Equilibrium Analysis

Christian Dufournaud, Carlos Raul Gutierrez, Lodetrijk Berlage, and Peter P. Rogerst

Year: 1989
Volume: Volume 10
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol10-No1-10
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Abstract:
Energy is critical for all human activity. Many countries import a major proportion of essential energy resources such as oil, for which the ability to substitute alternative inputs is difficult in both the short and long run. A possible response to the prospect that energy prices can fluctuate is for governments to negotiate long-term contracts with suppliers to mitigate sudden price shocks. This strategy is, however, not cost-free. It is equally rational for suppliers to negotiate high prices which protect them from the prospect of having to supply their oil at a lower price than they could anticipate in the future. A country seeking long-term protection from unstable oil prices via long-term contracts, therefore, faces higher current prices.



The Future of Long-term LNG Contracts

Peter R. Hartley

Year: 2015
Volume: Volume 36
Number: Number 3
DOI: 10.5547/01956574.36.3.phar
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Abstract:
Long-term contracts have long dominated the international market for LNG. Since 2000, however, the proportion of LNG-traded spot or under short-term contracts has grown substantially, while long-term contracts have become more flexible. While long-term contracts increase the debt capacity of large, long-lived, capital investments by reducing cash flow variability, they also may limit the ability of the contracting parties to take advantage of profitable ephemeral trading opportunities. After developing a model that illustrates these trade-offs, we argue that increased LNG market liquidity resulting from a number of exogenous changes is likely to encourage much greater volume and destination flexibility in contracts and increased reliance on short-term and spot market trades. These changes would, in turn, reinforce the initial increase in market liquidity.



A Top-Down Approach to Evaluating Cross-Border Natural Gas Infrastructure Projects in Europe

András Kiss, Adrienn Selei, and Borbála Takácsné Tóth

Year: 2016
Volume: Volume 37
Number: Sustainable Infrastructure Development and Cross-Border Coordination
DOI: https://doi.org/10.5547/01956574.37.SI3.akis
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Abstract:
There is an ongoing policy debate in Europe about how to select natural gas infrastructure projects for an EU-wide investment support scheme. We contribute to this debate by introducing a model-based project evaluation method that addresses several shortcomings of the current approach and demonstrate its application on a set of shortlisted investment proposals in Central and South Eastern Europe. Importantly, our selection mechanism deals with the complementarity and the substitutability of new pipelines. We find that a small number of projects are sufficient to maximize the net gain in regional welfare, but different baseline assumptions favor different project combinations. We also explore the consequences of Russian gas permanently delivered at the EU border from northern and southern routes that bypass Ukraine and find modest negative welfare effects.



Global LNG Pricing Terms and Revisions: An Empirical Analysis

Mark Agerton

Year: 2017
Volume: Volume 38
Number: Number 1
DOI: 10.5547/01956574.38.1.mage
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Abstract:
Asian long-term contracts for liquefied natural gas (LNG) are generally thought to index LNG prices to oil prices. This should mean that LNG and oil prices are cointegrated. However, statistical evidence for cointegration using Japanese data is not strong. To resolve this puzzle, I examine 16 Japanese, South Korean, Taiwanese, and Spanish LNG import price series and allow for multiple, unknown structural breaks in the relationship to oil prices. This resolves the puzzle, and I provide estimates for the timing of breaks and the underlying average pricing terms. I relate these to count, volume, and duration data on long-term contracts and discuss how to interpret econometric estimates in light of contract data. This paper complements existing work on global gas market integration, which largely ignores how discrete changes in oil-indexed long-term contracts will affect empirical relationships.





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