Comparision of Profitibility Between Long Term and Short Term Gas Contracts

The emergence of liberalization and deregulation are main factors of changes in structure of gas industry. These changes affect gas industry through two channels, first formation of “new risk distribution model” in the chain of gas supply and second, diminishing of long term contract length.The importance of first factor is redistribution of profit between sellers and buyers. In other word, buyers accept LNG chain supply risk in return of new opportunity for profit dividing.The empirical test based on a sample of 45 long term contract in Asia shows that there is inverse relation between liberalization and contract duration in gas market, as the “market share” of long term contracts in liberalized markets has lost significantly.The estimation results of this study show that there is a certain convergence of the contract duration that is gradually leaded to becoming smaller of the contract length over time. Also the model estimates long and short term demand functions in oligopoly market. It will show consumers and oligopolies producers benefit from long term contracts.