Japan, India Call For End To Unfair ‘Asian Premium’ On LNG Prices

September 11, 2013Marketsby EW News Desk Team


Ministers from Japan and India have called on energy exporters to reduce the price of liquefied natural gas (LNG), complaining that Asian states had been paying a higher ‘premium’ for the energy resource– compared to the prices paid by European and North American nations.

"LNG prices in Asia are substantially higher than those of other major consuming regions such as Europe and North America," the two countries said in a statement signed by Japan's Minister of Economy, Trade and Industry, Toshimitsu Motegi, and India's Minister for Petroleum and Natural Gas, Veerappa Moily on Monday.

"Many contracts include inflexible conditions such as destination clauses, which further the market illiquidity in the Asia-Pacific region," the ministers added. "For both LNG producers and consumers, the LNG price should be at (a) mutually acceptable level, considering the sustainability of the LNG market.”

“Even as the position of natural gas as an alternative fuel for oil is fading and the rationality for such price formation is less clear compared to past, the majority of LNG contracts in the Asia Pacific market are long term with a pricing formula that is linked to the oil price,” the statement further noted.

On Tuesday, the two countries also signed an agreement to set up a joint multilateral group to study the price of the fuel, with fellow Asian LNG importers such as Singapore and South Korea expected to be invited.

Japan and India hope that the group can improve their bargaining positions with energy exporters, while enabling “effective, stable and globally competitive LNG procurement.”

Japan is the world’s largest LNG importer, spending close to $60 billion on LNG imports last year. The figure is expected to balloon to $72.1 billion this year, as a result of complications surrounding its nuclear power facilities.

India on the other hand is hoping to cut its energy import bill by $25 billion this year, even as the slide in the value of the rupee is likely see to a major increase in the cost of its US dollar-denominated energy imports.

According to a report by the U.S. Federal Energy Regulatory Commission last month, Asian LNG importers paid as much as $15.75 per million British thermal unit this year, compared to $2.97 paid by LNG buyers in U.S. Gulf Coast and $9.79 by British consumers.

Most LNG sold in Asia is bought under long-term contracts linked to crude-oil prices. Japan and India are believed to be seeking for more flexible, spot-market pricing, possibly linked to U.S. gas prices

But producers on Tuesday warned the two countries to be “careful what it wishes for”, after claiming that the current low prices seen in the U.S., linked to the shale boom, were volatile and likely to climb back up.

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"That pricing in North America – Henry Hub – is a very volatile price. We have seen it within the last 10 years (reach) three or four times what it is now," said Australia’s deputy secretary of the Department of Resources, Energy and Tourism Martin Hoffman.

"It is a spot price for marginal volume. It is not a price for 10 or 15 years of guaranteed and reliable supply. So I guess when you think about the impact – sometimes, be careful what you wish for,” he said.

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