LNG Projects: Navigating Lifecycles and Potential Disputes
As a market experiencing growth and volatility, global LNG (Liquefied Natural Gas) is also the subject of complex disputes in energy and resources.
In this Q&A with Birger Balteskard, Enco’s Advisor on LNG, we explore the phases of LNG project lifecycles and key areas of potential disputes.
Enco Insights, London - 25 June 2025
This Q&A on LNG market disputes explores issues, including:
What are the key stages of LNG project lifecycles?
What are the main areas of potential disputes in LNG projects, including contentious issues in LNG pricing and offtake agreements?
What are the wider geopolitical and regulatory risks facing participants in this market?
Enco Insights: What do you view as the key stages of typical LNG project lifecycles?
Birger Balteskard: I would say that an LNG project typically follows five key stages:
Exploration & Extraction – In this stage, natural gas is sourced from reservoirs and/or from liquid hubs, as is the case in the United States.
Processing & Liquefaction – Here, the gas is purified into mostly methane and is free from mercury and other impurities. The processed gas is then cooled to about 160 degrees Celsius at atmospheric pressure. 600 litres of natural gas becomes 1 litre of LNG.
Shipping & Transportation – LNG is then transported via specialised vessels with cryogenic tanks. Modern LNG carriers can transport between 125,000-266,000 cubic meters of LNG. Modern LNG vessels use dual-fuel engines allowing the use of natural gas for improved efficiency and reduced emissions.
Regasification & Distribution – The LNG is delivered to receiving terminals, and is stored and regasified back into natural gas for end users. The LNG can be warmed up using sea water or ambient air heat exchangers, or by gas-fired heaters.
Consumption & Market Trading – Finally, the gas can be sold through trading hubs, to industrial users or distribution companies.
Enco: What would you say are the principal areas of potential LNG project disputes, and how can they arise?
Birger: In my experience, disputes can arise, but are not limited to, the following main areas:
Construction & Engineering – The key issues here are mainly delays, cost overruns, and technical failures. LNG projects are very complex and involve large capital spend. Some projects are also located at remote locations without the required infrastructure - all of which adds complexity.
Supply Chain & Logistics – This mainly concerns contractual disagreements over delivery schedules.
Regulatory Compliance – The lack of regulatory frameworks, and environmental and permitting issues can all create challenges for project developers.
Pricing & Offtake Agreements – Disputes over contract terms and price adjustments are not uncommon in LNG projects. Specifically, certain long-term Sales and Purchase Agreements (SPAs) have regular price review clauses. Often the Seller and the Buyer interpret such clauses differently. This is often are solved through negotiation, but sometime it needs to be resolved by a third party - such as an expert panel or court of arbitration. Other provisions of LNG offtake agreements which have been disputed include delivery obligations and use of Force Majeure provisions.
Birger Balteskard has held senior global roles in LNG marketing and trading at organisations globally. He is the former Head of Global LNG Marketing and Trading at ConocoPhilips.
Birger is an Enco Insights Advisor. He works with Enco’s disputes team as an expert witness and with our strategy team on market access and transformation projects. Contact us to get in touch with Birger and other members of our advisory network.
“The Japanese demand for LNG has become more uncertain through market deregulation, uncertainty of nuclear return and energy transition implications. These effects have all caused Buyers to seek more flexibility in offtake commitments. ”
Enco: LNG pricing and offtake agreements can sometimes result in disputes. Can you tell us about the issues in these areas which can cause problems?
Birger: LNG pricing and offtake agreements can often become contentious, in part due to the complexity involved. I would say the key areas of complexity in the current market are:
Price Volatility – For example, in the Asia Pacific basin, long-term SPAs are often priced off different indices than spot price (JKM). These indices could be oil bases (Brent/JCC etc), Henry Hub plus, or something else. Naturally, there will be times when the LNG prices under long term SPAs are higher than the spot price, and times it will be lower. This is generally understood and accepted by the industry. However, it can create tension between Seller and Buyer. Sometimes this can be seen in the parties’ use of the volume flexibility embedded into long-term SPAs.
Contract Flexibility – In the early stages of the global LNG industry, point-to-point SPAs were common. For instance, a field development was tied to a reservoir, a dedicated LNG facility and a long-term Buyer/Buyer Group which committed to offtake what was produced within certain contractual constraints. As the LNG market has evolved and, in some regions, become more integrated with the natural gas market both Sellers and Buyers have sought more flexibility.
Take-or-Pay Clauses – Take-or-Pay clauses are common in long term SPAs. For example, Buyers must pay for LNG if they do not take the contracted LNG volume without a valid excuse. This can be problematic for the Buyer when demand drops, storage capacity is limited and/or market price are not favourable. On the other hand, it is critical for the Seller that it has long term offtake security to support massive capital investments. More recently, the concept of Net Proceeds has surfaced in Long Term SPAs. In effect, if a Buyer does not take a cargo for unexcused reasons, then the Buyer still must pay for the cargo but receive a credit if the Seller resell the cargo to a third party.
LNG is mainly transported via specialised ships. Supply chain and logistics can be a key area of contractual disagreements, mainly concerning delivery schedules.
Enco: Looking beyond disputes, what do you think are the most significant geopolitical and regulatory risks facing participants in this sector?
Birger: There are several risk factors to consider in Global LNG trades, which include, but are not limited to:
Sanctions & Trade Restrictions - Political tensions can lead to sanctions and trade restrictions and disrupt LNG supply chains. For instance, the EU’s latest sanctions prohibit investments in Russian LNG projects and restrict transshipment in EU ports.
Regulatory Shifts – Changing environmental laws can impact contract terms. For example, the EU is pushing for stronger carbon pricing and emissions reduction policies which could impact LNG import costs.
Energy Security Concerns – Governments may intervene in LNG markets. Consider the loss of Russian pipeline gas in Europe, which highlighted the need for security of supply from a diverse pool of suppliers. About 40% of EU’s total gas supply came from LNG in 2024, nearly doubling its share since 2021.
Force Majeure Clauses – Contracts must account for unforeseen geopolitical events. Some LNG SPAs explicitly list sanctions as a Force Majeure event, allowing parties to suspend delivery or take obligations if sanctions prevent performance.
Enco: What do you view as the emerging trends and innovations in LNG that are driving change in the sector?
Birger: LNG is a very dynamic market with a lot of important innovations happening. In terms of the key factors driving this, I would focus on:
Security of Supply - Waterborne LNG provides energy security as it can be supplied from many diverse sources.
Decarbonisation & Sustainability - LNG offers a significant reduction compared to coal burn, with fewer CO2, particles and other substances. The LNG industry at large is acting responsibly by reducing CO2 emissions where possible and by developing Measurement, Reporting and Validation standards.
Floating LNG Technology – The use of Floating Storage and Regasification Units (FSRUs) has increased significantly in response to energy demand and geopolitical factors. FSRUs provide rapid deployment, lower capital costs and flexibility in LNG supply. FSRUs have also become a crucial part of the global LNG supply chain. Floating LNG Liquefaction Technology (FLNG) is also unlocking stranded gas reserves in Africa and elsewhere.
Spot Market Growth – Short-term contracts are becoming more popular driven by large supplies coming out of the U.S. without destination restrictions, global demand and shifting trade dynamics.
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