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Japan, India to collaborate on lowering LNG prices

09.09.2013  | 

Asian countries, the biggest buyers of seaborne LNG, sometimes pay five or six times more for the deep-chilled gas than do consumers of piped gas in North America, where prices have plunged due to growing availability on the back of a boom in production of the fuel from shale deposits.

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By MARI IWATA

Japan and India agreed Monday to set up a multilateral group of liquefied natural gas buyers to push for lower prices for the fuel, and they plan to ask other importers to join them.

Asian countries, the biggest buyers of seaborne LNG, sometimes pay five or six times more for the deep-chilled gas than do consumers of piped gas in North America, where prices have plunged due to growing availability on the back of a boom in production of the fuel from shale deposits.

In some cases, heavy energy import bills in Asia are being further inflated as a result of weakening currencies.

"LNG prices in Asia are substantially higher than those of other major consuming regions such as Europe and North America," the two countries said in a joint statement signed by Japan's Minister of Economy, Trade and Industry Toshimitsu Motegi and India's Minister for Petroleum and Natural Gas Veerappa Moily in Tokyo.

"Many contracts include inflexible conditions such as destination clauses," and "it is essential to review current business practices that would hinder market liquidity," the two ministers said.

They plan to ask fellow importers, such as South Korea and Singapore, at an LNG conference being held in Tokyo on Tuesday to join the new grouping. The conference will also include senior officials from producer countries including Australia, Indonesia, Qatar and Nigeria.

Most LNG sold in Asia is bought under long-term contracts linked to crude-oil prices. Oil-linked prices have stayed much higher than piped-gas prices in recent years, and Japan has been prominent among countries calling for more flexible and spot-based pricing, possibly linked to US gas prices.

Several Asian countries have already agreed to import LNG from North America, and deliveries could start within two years.

The main gas exporters already have their own association, the Gas Exporting Countries Forum, which includes Qatar and Russia among its members, although it has up to now acted mostly as a discussion group.

However in July, Russian President Vladimir Putin urged the group's 13 members to join forces and defend traditional long-term oil-linked gas contracts in the face of the growing popularity of spot-market pricing.

Speaking at a meeting of the organization, Mr. Putin said forsaking the oil-linked pricing system "may undermine the energy security of gas importers."

Mr. Putin said in a reference to booming North American shale gas output that the increased supply is "not a reason for rejecting long-term contracts, or take-or-pay principles."

LNG prices have soared in Asia this summer, and utilities in South Korea and Japan increased purchases due to unusually high temperatures, rising above $18/MMBtu compared with around $3/MMBtu in North America.

India in particular is under pressure, as the slide in the value of the rupee has caused a big rise in the cost of its dollar-denominated energy imports. In late August, India's oil minister said that Prime Minister Manmohan Singh had asked him to work out a plan to cut the oil import bill by $25 billion.

"[Asian] LNG prices are roughly 30% higher than North American gas prices even after factoring in the costs of liquefaction and transportation," said Hiromichi Moriyama, director of the industry ministry's International Energy Strategy department.

Japan is the world's largest LNG buyer, with its imports having risen over the past two years due to the Fukushima Daiichi disaster in March 2011, which resulted in the closure of most of its nuclear reactors. India is ramping up LNG purchases to help meet its own energy shortfall.

"North American projects will start shipping LNG as early as 2015. If their prices are lower, we may not buy expensive LNG," said Ryo Minami, who heads up the oil and natural gas department at the industry ministry.


Dow Jones Newswires



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