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Lower oil slows LNG pricing evolution: Mitsui

With Brent in its current range, a major seller to Asian buyers questions the current appetite to move away from the oil link

Japanese conglomerate Mitsui is unconvinced that there is significant current clamour from Asian LNG buyers to move away from oil indexation with oil prices seemingly largely rangebound. 

Eiji Yanagawa, president at Mitsui & Co Energy Market Services, shared his views on the current state of the LNG market with Petroleum Economist at September’s Gastech conference in Houston. 

How do you see Mitsui’s role in the LNG market generally?   

Yanagawa: Traditionally, Mitsui is a Japanese-based company. Our main role has been to price LNG to Japanese and Asian buyers. Also, we have a good access to financing–especially Japanese governmental financing—so we can contribute to LNG project development.  That is our traditional role, but that is changing a little bit now.  We have become a more global portfolio-type LNG player and we are trying to develop new countries and new markets, including emerging markets.  We are leveraging our access to LNG projects, as well as to financing.  Mitsui’s unique point is that we are not just an oil and gas company, we are a conglomerate.  We have an infrastructure business unit; sometimes we have power projects, so we can contribute across the entire value chain and introduce LNG to new markets and new buyers. 

How excited are you about the new projects that you are involved in?

Yanagawa: Cameron is the most recent— it started production from May and commercial operations in August. This project gives us the opportunity to get into US LNG liquefaction market and into a unique pricing structure. It is one of the core projects in our portfolio.  The supply location in the Gulf of Mexico gives us access to the Atlantic market, especially Latin America as well as European markets.  That is quite exciting for us, because our traditional market is in Asia.

The next one will be Mozambique. The Mozambique joint venture is doing joint marketing.  But we see a lot of new buyers for Mozambique LNG, so we are developing new relationships with these buyers— in India, Indonesia, Thailand. It gives us more opportunities. Mozambique’s locational is also very strategic.  We can go either to the Pacific or Atlantic market.

Arctic LNG 2, that is quite a new project for us, it has just taken FID. The marketing effort really starts now. Again, it is well located—its main market is Europe, but the supply can also go to Asia. 

You mentioned the Cameron pricing structure.  Are you seeing globally more of an appetite for different and innovative pricing models?   

Yanagawa: Frankly, in the current market where the oil price is in a $50-60/bl range, oil-linked contracts are more competitive against Henry Hub or other pricing, so many buyers are inclined to stick with traditional oil-based pricing at the moment.  Of course, it depends on the price level.  If the price stabilises at $70/bl or $80/bl, maybe their appetite and behaviour changes again. 

We see a lot of new buyers for Mozambique LNG, so we are developing new relationships with these buyers

It is very interesting to hear that from a genuine seller to Asian buyers, as it is somewhat different to what commentators have perhaps suggested. Something else that is happening in the Asian market, is it fair to say that the pace of growth of Chinese demand is finally beginning to slow down?  

Yanagawa: Yes, it is slowing down, but demand is still healthy. Chinese buyers remain very price sensitive.  Also, the Chinese governmental control and regulatory system for LNG is changing.  A lot of new buyers other than the NOCs are coming into the market.  We see some buyers already seeking long-term contracts, and some will be global standard level of buyers.    

Do these independents coming into the market to buy, as opposed to the traditional ‘Big Three’, change the dynamic a little bit?  Is there credit risk there?

Yanagawa: Previously the government wanted to limit LNG imports to just the three state-controlled firms.  But they have changed their policy to open the market more to smaller players—opened access to existing terminals and loosened the regulations on who can develop new terminals. It gives more opportunity to new buyers to buy LNG directly from international markets. Obviously, there are some credit risk, but some buyers are large private companies, or municipal power and gas firms, so they are large enough.  They do not have any actual LNG experience, but we can collaborate with them.

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