Expectations and the Evolving World Gas Market

A number of authors have noted that recent changes in the liquefied natural gas (LNG) industry are likely to favor shorter term multilateral trades of LNG relative to long term bilateral and project-specific contracts. We present a model in which expectations of such a change in market structure alter investment behavior in a way that reinforces the original tendency. The result is that the structure of the natural gas market could change quite quickly, as happened previously in the world oil market.