The Evolving State of Today's LNG Spot Market - "Where we are and how we got there"

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The evolution of the global LNG market continues apace, influenced at a macro level most recently by the need for ever greater quantities of LNG in a post-tsunami, nuclear-power-short Japan, faced with massive reconstruction-related energy requirements. What follows in this first of a series of LNG-focused Client Alerts is a snapshot of the current status of this market, focusing on its evolution and in particular on emergence of the sub-market for spot LNG trading. We will identify a few interesting aspects of the market's evolutionary process, make some educated guesses about how it will develop from here, and finally, flag as a heightened risk factor, the potential for non-compliance with anti-corruption requirements of very broad applicability.

Market Evolution

Today's LNG market has come a long way in a relatively short time from its early days of large, long-term, capital-intensive projects dominated by an elite list of very large players residing on the production and consumption ends of the natural gas value chain. Going forward, some things will clearly remain the same, as ever-larger in scale new LNG producing projects will likely continue to be brought on line by the major international petroleum companies, together with the sovereign gas producing nations who are their natural partners in such ventures. These types of projects will clearly continue to find their funding from both the majors' cash flows attributable to prevailing strong oil prices, and external financing secured by the types of traditional long-term LNG purchase commitments historically made by the large utility and industrial concerns resident in countries lacking in sufficient domestic energy resources. Such traditional projects and long-term commitments, however, will no longer represent the entirety, or at some future stage may no longer represent even the majority, of the overall global LNG marketplace.

Please see full alert below for more information.

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