SEOUL: Asian gas and power companies are starting to pair up for joint purchases of LNG after more ambitious efforts to form a regional group to win lower prices and less rigid contracts have stalled.
Japan, India, South Korea and other Asian gas importers — who take about 70 percent of global liquefied natural gas (LNG) exports — have been trying to form a buyers’ club to use their dominant market presence to delink contract prices from oil and allow importing companies to resell any excess cargoes.
But after two meetings to discuss a regional buyers’ group last year, a third was cancelled in February and no others have been scheduled. The issue was also not on the official agenda last week at a gas industry conference in South Korea.
Tired of a lack of progress on the government-led initiative, a number of firms — including Japanese power companies and state gas utilities in India and South Korea — are looking at other ways to buy LNG collectively, with the gain of any advantage becoming more critical as import costs soar.
Asia’s rising demand for LNG pushed spot prices to near-record levels above $20 per million British thermal units in February, while the gas import bill in top importer Japan rose nearly a fifth last year.
“As long as there is no structural change to the supply of LNG or gas into the Asian market, prices will remain high,” Hirobumi Kawano, the head of state-run Japan Oil, Gas and Metals National Corp (JOGMEC), said last week at a conference in South Korea.
LNG has traditionally been sold in Asia under long-term contracts linked to benchmark oil prices, giving buyers supply security and producers of the fuel a guaranteed return on billion-dollar investments.
And while co-buying is unlikely to give companies a break on prices, it would improve flexibility by allowing them to shift cargoes between two or more delivery points, executives say.
With no broader grouping, there may be few other ways for Asian LNG buyers to win any leeway in their contracts.
Participants at the industry meeting in South Korea last week said that just how cool Asian governments had gone on the buyers’ club idea could be measured by the fact that few Japanese companies were represented by senior management at the conference, apart from Chubu Electric Power.
“Japan is not that far away. So if you can’t even get Japanese buyers to a major conference, what chance does the Asian buyers’ club see in this regard?” asked Noel Tomnay, head analyst of global gas research at Wood Mackenzie.
Japan’s LNG imports in 2013 hit a record 87.5 million tonnes at a highest-ever cost of $69bn, up 17.5 percent from the previous year.
Chubu Electric and Indian state gas utility GAIL last week signed a deal to consider cooperation in joint procurement of LNG; and the head of state-run Korea Gas Corp (KOGAS), Jang Seok-hyo, said his company has also agreed with Japanese companies to co-purchase.
Otherwise commitments from companies remain few. Tokyo Electric Power Co’s proposal to domestic and foreign firms to jointly procure up to 40 million tonnes of LNG a year, for instance, has drawn little interest.
Reuters
