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Asian LNG buyers seek better contract terms
PROJECTS & COMPANIES
ASIAN LNG importers are seeking better con- tractual terms from their long-term suppliers in response to depressed prices on the spot market.
Spot prices may have climbed to a more than six-month high in the week ending September 20, but the outlook for the remainder of the year is less positive. Reuters cited several unnamed mar- ket sources on September 20 as saying spot prices for November delivery to East Asia were about $5.80 per million British thermal units ($160.43 per 1,000 cubic metres) while October prices are estimated at $5.60 per mmBtu ($154.90 per 1,000 cubic metres). According to the newswire’s data, these prices were at their highest point since March. Prices have rallied on the back of strong European gas-for-power demand and an oil price spike that was triggered by recent attacks on key Saudi Ara- bian oil infrastructure.
On September 23, however, market sources told Reuters that Asian LNG prices were on course to hit their lowest level in a decade on a seasonal basis in December, owing to market oversupply.
This has created conditions for buyers to take the uncommon step of revisiting their long-term contracts in order to secure better terms.
JERA
Japanese energy trader JERA has successfully asked some of its long-term suppliers to drop destination clauses from existing contracts, managing executive officer Sunao Nakamura told Reuters on September 19. Japan’s largest LNG importer is working on bringing contracts signed before 2017’s ruling by the Fair Trade Commission (JFTC) that such clauses breach competition rules in line with those signed since.
“We have been asking sellers to scrap the des- tination clauses from the current contracts and some of them have accepted our request,” JERA’s managing executive officer, Sunao Nakamura, told Reuters on September 19. “Since the sup- ply-demand balance has relaxed compared with five to six years ago, buyers have better chances togetwhattheywant.”
JERA, which is a joint venture between Tokyo Electric Power Co. (TEPCO) and Chubu Electric Power, has been increasing imports via the spot market and term contracts of four years or less. Nakamura said these contracts used price for- mulae that differed from traditional oil indexing and included an LNG spot price index or a Euro- pean gas price index.
“With growing uncertainty of energy demand in Japan due to unexpected weather patterns and increasing use of renewable energy, we can’t make commitment without flexibility,” he said.
Commenting on recent attacks on key Saudi Arabian oil production facilities, which took 5.7mn barrels per day (bpd) of capacity offline, Nakamura said his company had not been affected but that it would carefully monitor inter- national oil price developments.
JERA is not alone in seeking a better deal from its suppliers, with India also reportedly looking for more favourable term contracts for its deliveries of Australian LNG.
Indian initiative
Mining Weekly said on September 18 that New Delhi had told the Australian government that it was eager to ramp up imports as long as current contracts could be renegotiated.
Indian buyers have long-term contracts for about 1.44mn tonnes per year of Austral- ian LNG, while Qatar, the US and Russia have agreed to supply 8.5mn tpy, 5.8mn tpy and 2.5mn respectively.
The news site noted that the Indian govern- ment had said consumers were “price sensitive” and that while most of India’s long-term LNG import contracts were around $8-9 per mmBtu ($221.28-248.94 per 1,000 cubic metres), current spot prices were significantly lower.
While Mining Weekly cited unnamed indus- try sources as expressing some doubt that term contracts would be successfully renegotiated, given rising demand from China, India does have form in this area.
State-run Petronet secured price cuts from ExxonMobil’s Gorgon LNG project in Australia in 2017 in exchange for an agreement to increase pur- chases. India has also renegotiated long-term sup- ply contracts with Qatar in 2015 and Russia in 2018.
Indian Petroleum and Natural Gas Minis- ter Dharmendra Pradhan said in August that his government would revisit “pricing of long- term LNG import contracts at the appropriate time”, though he insisted that contracts would be honoured.
Given that the near-term outlook for LNG prices is fairly gloomy, more buyers may be encouraged to follow India and Japan’s lead.
Price pressure
A Reuters’ survey of traders on September 23 foundthatspotAsianLNGpricesforDecember delivery were not expected to command more than $6 per mmBtu ($165.96 per 1,000 cubic metres), the lowest pricing for December since Refinitiv began collecting price data in 2010. Moreover, January and February prices are also not anticipated to go much beyond that level.
“I don’t see a clear premium market this winter. Japan is not growing, India’s buying is opportunistic, China was supposed to be the big place, but now it’s not. In Europe, once stocks are totally full there is no way this flow continues,” one trade source said.
A European-based trader said: “You really need a combination of a cold winter in both Asia and Europe and a cut in Russian transit to end the winter with low storage levels. We could survive a strong cut in Russian flows through 2020.”™
Asian LNG prices are on course to hit their lowest level in a decade on a seasonal basis in December
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w w w . N E W S B A S E . c o m Week 38 25•September•2019