Changes in supply and demand and near the end long-term contracts can drive more LNG sales to spot markets and may result in the adoption of short-term sales contracts, Qatar National Bank said in a report.QNB expect this gradual shift to continue in the coming years, but as most of the market, especially key producers such as Qatar, continue to operate on long-term contracts and long-term buyers’ needs.LNG prices in Asia have risen sharply in recent months due to rising Chinese demand. Despite the increased supply in the market, Chinese buyers have had difficulty finding LNG because most of the supplies were booked on long-term contracts, leaving less than a third of the total supply available on the global spot market.The global LNG market operates very differently from the fossil fuel market, crude oil. There is no single standard price for LNG as the market is largely divided by regions, QNB said.In North America and Europe, LNG trading is now conducted on contracts with shorter terms, and pricing generally reflects market fundamentals associated with supply and demand. However, the volume of LNG traded is relatively low because Europe and North America have a more mature infrastructure than the pipelines through which more gas is supplied. But in Asia – where 70 percent of global liquefied natural gas supplies go – buyers have historically sought to secure the commodity with 20-year contracts or more to ensure a stable and reliable supply.It has long been debated whether Asia should shift to a more flexible model like North America and Aruba. Historically, long-term contracts and the oil price index have been beneficial to both producers and consumers. Continuous cash flow towards producers has led to higher investment in the sector, which in turn has prevented a shortage of supply or higher prices for consumers. However, two factors have now emerged as a challenge to the current operating environment, QNB’s report said.First, the strong appearance of shale gas in the United States created a new source of supply for global liquefied natural gas markets and led to price cuts, prompting buyers to switch to short contracts. The rapid development of US shale gas in the mid-1990s has resulted in an oversupply in the domestic gas market in the United States, resulting in a sharp decline in natural gas prices.The decline has pushed US gas prices to a much lower level than Asian crude oil prices from 2009 to 2015, and both prices remained close even after the fall in crude oil prices. As a result, buyers are looking at US gas prices as the market cap, and these prices will continue as US LNG exports continue to grow. The United States completed its first LNG export terminal in 2016 and began to ship quantities this year.Second, long-term prospects for LNG demand are increasingly optimistic compared to oil forecasts. This may be beneficial for LNG producers who will benefit from selling more gas in spot markets. Demand for LNG is estimated to grow by more than 3-5 percent annually until 2030, while oil demand growth is expected to be between 0.5-1 percent per year over the same period. The global increase in natural gas consumption is due to growing environmental interest, especially in Europe and China, because it has one of the lowest CO2 emissions compared to other fossil fuels such as oil and coal.These two factors will play an increasingly important role in the coming years as a number of large, long-term contracts in Asia are about to be completed in the early 1920s, allowing both buyers and sellers to renegotiate new terms for the LNG trade. The international group of LNG importers expects long-term contracts to supply more than 6 percent of the world’s LNG by 2020, and this will increase to more than 20 percent by 2025. Recent trends have shown the signing of new long-term contracts along with an increase in immediate short-term contracts. Qatar, for example, signed long-term contracts with Pakistan, Bangladesh and Thailand, while countries such as China, Singapore, Angola and Kuwait held short-term agreements with various vendors.To conclude, QNB said that l LNG prices in the United States and rising future demand prospects are likely to lead to shorter contracts and new pricing mechanisms that better reflect LNG fundamentals.However, this shift will be gradual as the current operating environment serves both buyers and sellers well. Qatar and other key LNG players will continue to work on long-term contracts to ensure steady flows and the use of the oil price index, which is currently the most viable and reliable means of pricing LNG for the long term.