India and Japan push for change in LNG market

Asian LNG importers are pushing for greater flexibility in purchasing agreements © Bloomberg

India and Japan are to push jointly for greater flexibility of contracts and transparency in the Asian liquefied natural gas market in a move likely to shift the balance of power further to importers from producers. 

Japan, the world’s largest buyer of LNG, and India, the fourth-largest, account for almost 40 per cent of the international market. Gail, India’s largest gas importer and distributor, is state-run, and a memorandum of co-operation signed by the two on Wednesday is likely to lead to Gail and Japanese power groups teaming up to secure better terms.

“Both India and Japan want to make the Asian LNG market more flexible,” said Masato Sasaki, director of petroleum and natural gas at Japan’s Ministry of Economy, Trade and Industry.

The signing of the accord comes as large Asian LNG importers are calling for greater flexibility in purchasing agreements that have traditionally run for decades with restricted destination clauses barring the re-selling of cargoes. Contracts have also tended to make buyers take fixed amounts of LNG regardless of their needs.

With demand for gas expected to increase, India has been signing LNG contracts. Japan’s appetite for LNG is likely to shrink thanks to rising energy efficiency and the return of nuclear power. Importers in Japan are forecast to be holding too much supply in the near future.

The rise in LNG supplies, which has pushed down prices, and the emergence of US exports that are sold without restrictive destination clauses, are transforming the global market.

Leading Asian LNG buyers are already looking for ways to team up to secure supplies and develop the market. This year, Jera of Japan, Kogas of Korea and Cnooc of China, the world’s top LNG importers, agreed to discuss “joint procurement of LNG, joint participation in upstream projects, and co-operation relating to LNG shipping and storage”, according to Jera.

The growing muscle of importers was acknowledged by the International Energy Agency in its latest report on global gas security published on Wednesday. “As the LNG market is growing in volume and diversity of players, contracting strategies are expected to increase in importance to enable the mitigation of uncertainties,” the report noted. “Buyers will look for competitiveness and flexibility, both of destination and of quantity.”

An agreement between Total and Jera in April underlined the growing flexibility of contracts, with the Japanese company agreeing to buy six cargoes of LNG, four priced on a traditional oil-indexed formula and two on spot market prices. 

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