This article concentrates on some aspects of the relationships between owners and charterers of LNG ships and third parties which are rather different from similar relationships in the more established trades, and which illustrate the theme of risk sharing. It is necessary to start with a few general observations about the LNG shipping business, and then to deal with each aspect in turn.

The very large investment required to construct an LNG project is at present one of the main characteristics of the LNG business, and in particular, it is responsible for the long-term nature of the supply contracts and those dependent on them. Another main characteristic in LNG projects is that usually every link in the chain from wellhead to market is exclusively dedicated to the project, and there is no alternative use for the enormous investments involved (this is the so-called “closed loop” characteristic). In these circumstances, it is clear that from the investor’s viewpoint the investment must be as reliably secured as possible over its working life by the time the investment is made; only long-term contracts (of the order of 20 years), starting with the sale of LNG contracts on which all others are dependent, offer the appropriate level of security (although, as we saw for instance in April, 1980, with the Sonatrach/El Paso dispute, a formal contract in the LNG business is as vulnerable as any other!). Therefore all major LNG charters have in the past been long-term contracts. While we have seen the development of an exceptionally limited market for short-term LNG carrier fixtures, due mainly to projects being unexpectedly short of tonnage from time to time,1 and while such a market is likely to continue for some time in its present restricted form, a significant expansion would not seem likely until, perhaps, current long-term contracts expire;2 hence, we will for a long time to come be talking essentially about long-term contracts when we look at LNG charters in a general sense. It is, therefore, on long-term LNG charters that attention is focused here.