Page 9 - GLNG Week 31

GLNG ASIA GLNG
Japanese utilities react to low LNG spot prices
PERFORMANCE
Japanese utilities receive most of their LNG supply through binding long-term contracts.
JAPANESE utilities are becoming more aggres- sive in their price reviews for long-term LNG contracts owing to a decline in spot market prices for the fuel, which have fallen to three- year lows. Citing lawyers and analysts that have commented on this trend, Reuters reported that these utilities were also seeking to buy more LNG on the spot market, where LNG-AS prices are around half the average contract import price.
Japan is the world’s biggest buyer of LNG and buyers from the country have traditionally prioritised stability of supply over price, which is attributed largely to the fact that they could pass the cost on to consumers. However, liber- alisation in Japanese markets means utilities risk losing customers to new entrants unless they cut costs.
“Given the gas and power markets liberalisa- tion and intensifying domestic competition in Japan, it is very important for Japanese utilities to achieve competitive LNG prices, so price review negotiations are becoming more intense,” Wood Mackenzie’s head of gas and LNG consulting for Asia-Paci c, anasis Ko nakos, was reported as saying.
Indeed, reports have emerged that Japan’s Osaka Gas is in arbitration with ExxonMobil
a er failing to obtain a reduction in prices from the PNG LNG project in Papua New Guinea during a price review.
is is reportedly the second price arbitration in Asia, a er Woodside Energy’s North West Shelf LNG project in Australia started proceed- ings against South Korea’s Korea Gas (KOGAS) in 2018.
And more contract reviews could go into arbitration, especially if Japanese buyers con- tinue to take a tougher line in negotiations. However, Reuters cited one anonymous gas executive with experience of LNG projects and price reviews as saying that even if Osaka Gas succeeds in having prices reduced, they are unlikely to be more than 5% below the agreed contract price.
With arbitration being a costly and risky move, it is unsurprising that a number of util- ities are turning to the spot market instead. ose seeking to take advantage of cheaper spot prices include Tokyo Gas, Hokkaido Electric Power, Tohoku Electric Power, Kyushu Elec- tric Power and Hokuriku Electric Power. But given that most of these utilities’ supply comes from binding long-term contracts, they are also limited in the number of spot cargoes they can currently buy.™
AUSTRALASIA
Australia mulls gas reserve policy
POLICY
THE Australian government will consider a nat- ural gas reserve policy as it seeks to bring down the cost of the fuel on the domestic market.
e country is set to become the world’s larg- est exporter of lique ed natural gas (LNG) in nancial year 2019-2020, with the country pro- jected to export 80mn tonnes compared with current leader Qatar’s 77mn tonnes.
e rise in shipments to foreign buyers has put upward pressure on domestic prices, how- ever, prompting both domestic and industrial consumers to induce the government to do something.
Resources Minister Matthew Canavan and Energy Minister Angus Taylor said on August 6 that they would review a range of policies in order to come up with options by February 2021. ese will include gas reservation, pipeline access and price transparency.
“Past approvals of large gas export projects have not adequately considered the impact on the domestic gas market and that has contrib- uted to some of the pressures we have seen in recent years. We cannot a ord to repeat these past mistakes,” Taylor and Canavan said in a joint statement.
Canavan told a press conference that should a gas reserve policy be introduced it would not affect Western Australia or existing develop- ments. WA has had a 15% gas reserve policy in place for many years and has been cited by con- sumer lobby groups as an example of how local gas prices can be kept low without sacri cing investment in new export projects.
Queensland, meanwhile, has already intro- duced its own gas reserve policy in the form of issuing new exploration blocks that are only permitted to supply the domestic market. e state has released more than 39,000 square km of land for gas exploration since 2015, with almost a quarter of that carrying domestic marketing requirements.
Canavan and Taylor added that the Aus- tralian Domestic Gas Security Mechanism (ADGSM) would be also reviewed. e mecha- nism was introduced in 2017 as a means of pre- venting LNG export projects from running at a supply de cit to the local gas market.
e central government also intends to put pressure on state governments to li moratoria on onshore drilling, which Canberra hopes will bring new supplies to market.™
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