The Institutionalization of Geopolitical Influence in LNG Contracts

Research on dependencies and physical gas trade is extensive. Fixed infrastructure, such as pipelines, and their geopolitical implications have been well established. While this physical dimension is an important aspect of gas trade and geopolitics, it does not reflect the full story, or reality. LNG, for example, is hailed for its flexibility and being a less coercive instrument, because LNG infrastructure “allows for easy market access and source substitution” and the market is accordingly competitive (Hartvig et al., 2024; Paltsev, 2015). However, generally, an important legal dimension to gas trade is overlooked, and that is contracts and their legally binding nature which underlie investments in energy infrastructure and lock countries into long-term dependencies. We aim to investigate this under-exposed role of LNG contracts in dependencies and geopolitics, as few studies have combined geopolitics and contracts. We specifically ask: what is the role of contracts in energy statecraft? Drawing from Susan Strange, we conceptualize contracts as an element of structural power, that is, the power to shape and determine the structures of the global political economy within which states, institutions, economies and professionals operate. Natural gas is a highly concentrated natural resource and provides the limited number of producers with structural power. In addition, the gas sector, which consists of a combination of public (i.e., state-run, or state-owned, companies) and private actors (e.g., large energy companies, like Shell, ExxonMobil, BP), exemplifies the connection between state and market. Contracts link to the financial dimension, as they form the basis of gas trade and pertain agreements on shipping, prices and many more aspects. In other words, contracts are the written representation of power relations between actors and can be used to measure the potential for geopolitical influence. We therefore outline the mechanisms through which power can be expressed including volume, duration and delivery terms (DES/FOB), price, compensation/arbitration. We then gather data on LNG contracts to map the contours of structural power expressed in contracts, and the resulting potential to use contracts as energy statecraft. We expect that producers will try to maximize geopolitical leverage, while consumer countries try to minimize them. Smaller producer countries will be unsuccessful in achieving this leverage through contracts, while larger producers are capable of this.