* Destination clauses likely to die soon -KAPSARC researcher
* No meetings scheduled for buyers' club, but delegates
* More "flexible and liquid" LNG market developing -IEA
* China, India emergence also driving spot LNG trade -Platts
By Mark Tay
SINGAPORE, April 3 The world's gas industry is
descending on Tokyo this week with something other than cherry
blossoms on its mind: a trio of Asian LNG buyers testing their
collective muscle in a push for more flexible long-term
contracts for the fuel.
Korea Gas Corp (KOGAS), Japan's JERA and China
National Offshore Oil Corp (CNOOC) - whose joint
liquefied natural gas volumes account for a third of global LNG
trade - are attempting to cement a shift in power from producers
to importers amid a supply glut that is expected to persist into
Developing responses from LNG producers to the group's
alliance may also soon start to give clues as to who will win
advantage as the fuel surplus puts pressure on suppliers to give
buyers greater contractual freedom than they have had since the
industry first began to ramp up in the 1970s.
"Destination clauses will probably die soon under the
pressure of buyers and the growing needs for flexibility," said
Anne-Sophie Corbeau, a research fellow at the King Abdullah
Petroleum Studies and Research Centre (KAPSARC) in Saudi Arabia.
No meetings between the three buyers and major producers
such as Royal Dutch Shell, Chevron and Qatargas
have yet been confirmed at the Gastech biannual industry
gathering, but representatives of all are certain to be in
attendance, and other delegates are sure to be watching to see
what happens when their paths cross.
North Asian LNG buyers - including those agreeing last month
to explore joint purchases of supplies - have for decades relied
on rigid long-term contracts that prevent cargo resales because
the main priority was security of supply as energy demand soared
amid double-digit economic growth.
But a slowdown in Asian growth over the past few years,
especially in top two buyers Japan and South Korea, and
impending liberalisation of gas and power markets mean dominant
utilities are now often stuck with surplus cargoes they cannot
resell amid stagnant or shrinking demand at home.
Last year for instance, global installed LNG capacity was
over 300 million tonnes a year, while only about 268 million
tonnes of LNG were traded, according to Thomson Reuters data.
JERA and KOGAS have both indicated they aim to ink only
future contracts that have more flexible terms, but it remains
unclear if they or other Asian buyers plan to force existing
contracts into arbitration.
Many LNG producers have so far declined to comment on the
rising threat from more aggressive buyers, although Australia's
Woodside Petroleum suggested last week that flexibility
in long-term contracts would eventually lead to a more liquid
(For graphics on the global LNG market, please see tmsnrt.rs/2ofFm2U
Another disrupting force in the LNG market could be the
emergence of importers like Pakistan that utilise floating
storage and regasification units, who would also be small-scale
buyers seeking shorter-term contracts.
"There are more new types of players coming into the market
so it's no longer the long-term bilateral type of dedicated
deals between utilities and exporters, but we're seeing a more
flexible and liquid market developing," Keisuke Sadamori,
director of energy markets and security for the International
Energy Agency, told Reuters.
Asia, which accounts for about 70 percent of the world's LNG
demand, is poised as well to benefit from rising U.S. exports
that are on track to make the United States the third-largest
exporter of LNG next year.
U.S. LNG is attractive to Asian buyers as cargoes have no
destination restrictions that prevent them from being resold
when domestic power demand is weak.
"This growth (in spot and short-term contracts) is driven by
several factors including ... the Japanese gas and power sector
deregulations, (and the) uncertainty of LNG demand in Japan and
Korea given potential nuclear power plant re-starts," said Marc
Howson, LNG Senior Managing Editor at S&P Global Platts.
The emergence of price-sensitive buyers in India and China
is also driving the market towards more spot trade, Howson said.
India does not rule out the possibility of joining the
China, Japan and Korea grouping to jointly buy LNG to extract
better deals, the country's Oil Minister Dharmendra Pradhan said
last month, adding that the market was gradually becoming more
(Reporting by Mark Tay, with additional reporting by Florence
Tan in SINGAPORE, Osamu Tsukimori in TOKYO and Jane Chung in
SEOUL; Editing by Tom Hogue)