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 <LNG-AS> 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), told Reuters 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 $69 billion, up 17.5 percent from the previous year.
Joint Agreements, Import Costs
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 when volumes are available.
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.
Import costs, industry leaders said at the meeting, are not likely to drop until projects in Australia and U.S. shale gas exports bring a new wave of LNG toward the end of the decade.
Asian gas prices, which cover chilling and shipping costs, are at least three times prices in the United States, where the shale boom has reduced what consumers pay for piped gas.
Importing countries have also proposed creating a regional trading hub to mirror the market structure in the United States and Europe and allowing for more spot and short-term trading.
But the idea has been slow to develop, with a lack of infrastructure such as pipelines and storage terminals, as well as the absence of harmonized regulatory rules in the region.
"The hubs in (the United States and Europe) took 20 years to develop. There's no reason to think that things will be any different here," said Chris Holmes, senior director for Global Gas & LNG at IHS Global.
Despite all the talk of creating a trading hub and increasing market liquidity, rapidly rising demand from China and South America is prompting some traditional buyers in Japan, South Korea and Taiwan to return to the reliability and security of long-term contracts.
KOGAS, the world's largest corporate buyer of LNG, currently buys 20 percent of its gas in the spot market or under short-term contracts, but says it wants to reduce that proportion to 5 percent to lower price and supply volatility.
"Spot gas prices have on average cost 10 percent more than long-term supply," said Jang, the company's chief executive."I think it is better to reduce the spot and short-term procurement to secure the supply."
Source:- newindianexpress.com
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