Comment by mlrtime
4 days ago
>So many a time LNG companies break contracts and pay hefty penalties if the spot rate is high enough.
What do you mean "Break contracts"? I thought the conversation was about Futures contracts, you don't break them. You sell your contract or you take/give delivery (or cash settle).
There's no specific mention of futures upthread of this comment.
Not all gas is sold by futures, you can have a contract for, say, delivery of 20 million cubic metres of gas a year and a penalty if that isn't met. Some people actually want the gas for gas-related purposes rather then as a financial phantom.
Same for DRAM - Dell actually wants the chips to put in computers, an economic abstraction doesn't help much when you need to ship real computers to get paid, and many customers aren't in the market for a laptop future (Framework pre-orders notwithstanding).
As I understand hydrocarbon trading (oil and gas), futures is a tiny portion of the settled market. The vast majority is traded through long-term, privately negotiated contracts. As I said previously, many of those contracts are so large that the end buyer takes an equity stake in the extraction site.