Asian LNG buyers in command
The region’s biggest importers want cheaper supplies
WHEN oil prices were high and liquefied natural gas supplies tight, buyers had no choice but to sign up for high-priced gas arranged through fixed long-term supply deals. Now Asia’s biggest buyers want cheaper supplies and more flexible terms. Exporters have little choice but to comply.
CNPC’s boss Wang Yilin said in March that his firm even wants to renegotiate the terms of its LNG supply deal with Qatar. The company signed a 25-year supply deal with Qatargas and Shell for 3m tonnes a year of LNG. That was in 2010, when buyers needed nous just to find spare supply.
Yilin did not say whether the deal would allow for a price review. But LNG is abundant these days, and exporters are having to swallow revisions. India’s Petronet proved this late last year, when it successfully renegotiated its 7.5m t/y LNG-supply contract with Qatar’s RasGas.
Petronet managed to slash the price it pays RasGas, from around $12 per million British thermal units to less than $5/m Btu. In return, Petronet agreed to take an another 1m t/y of LNG for 12 years, starting from 1 January, at prevailing market prices.
Another Chinese state-run firm, Cnooc, is renegotiating its existing 8.6m t/y supply contract with Shell.
Buyers also want to scrap destination clauses. After buying the LNG, they own it – so should be allowed to re-export it themselves. But exporters have demurred.
Jera, a joint venture between Tokyo Electric Power and Chubu Electric, is trying to create an alliance of big gas buyers.It says it will no longer accept destination clauses in new supply contracts.
The market is putting the wind in their sails. Asian LNG prices sank to seven-year lows in April, buckling under the weight of a supply glut that is expected to linger. Energy Aspects expects Japanese LNG will average around $4/m Btu this year – less than a quarter their price three years ago. They could fall again next year, to around $3.40/m Btu, the consultancy says. Spot LNG could be bought for $4.70/m Btu in northeast Asia and $4.30/m Btu in northwest Europe at the beginning of May, according to Argus Media.
Oil prices, though, may have bottomed. If they rise in the second half of the year, the disconnect with Brent and LNG prices will only grow wider. US LNG exports now offer buyers prices based on Henry Hub in the US, where prices remain at historical lows. The era of rigid long-term oil-indexed LNG contracts is fading quickly.