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Emerging market macroeconomic risks change natural gas market structure

Natural gas markets are shifting from short-term spot market trading toward long-term contracts as developing economies seek to lock in supply and avoid macroeconomic instability. Major LNG importers like India and Brazil now aim to supplement spot purchases with 10-20 year offtake deals. Though spot prices are retreating from 2022's record highs, importers were burned by recent shortages and are willing to pay for insulation from volatility.

The change comes after Pakistan's LNG imports collapsed, triggering 20-hour blackouts and industrial shutdowns. Its suppliers diverted cargoes to higher-priced markets during the supply crunch, despite long-term deals. With Pakistan's economy and currency in freefall, it couldn't compete.

Other emerging markets want to avoid a similar fate. India leveraged its stable growth and credit to sign new long-term LNG contracts this week and Brazil is pursuing a similar strategy. Securing baseload supply helps these countries focus on development rather than energy security. But smaller nations remain vulnerable to predatory trading practices.

Ultimately, integrating developing countries into gas indexes could deter exploitation while maintaining spot market flexibility. But importers' renewed zeal for long-term deals shows the damage already done to trust in energy markets.


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