Something Very Unusual Just Happened In Asia’s Roaring LNG Market

Japan, the world’s single largest importer of liquefied natural gas (LNG), has imported its first LNG cargo on record from the world’s second-biggest importer and largest growth market, China, as the Asian LNG market has seen some unusual developments this year.

An LNG cargo of 70,560 tons was shipped in July from China’s LNG terminal Hainan, operated by state-held CNOOC, to a terminal near Nagoya in Japan, Reuters reported on Thursday, quoting a source with knowledge of the matter.

With low summer Chinese gas demand, Chinese buyers of LNG have started to re-export some cargoes, while Japanese buyers are looking to buy spot LNG cargos at prices at multi-year lows, in order to reduce their gas import costs, because Japanese utilities typically have term contracts for LNG imports at prices indexed to oil prices.

According to Reuters, the LNG cargo from China was shipped at a price of US$5.68 per million British thermal units (MMBtu). This compares with an average import cost for Japanese utilities of US$9.50/MMBtu for July.

Utilities in Japan are seeking price reviews in their short term LNG supply contracts as the Japanese energy market liberalization boosts competition and as Asian spot prices slump to their lowest in years.  

Japanese LNG buyers are increasingly aggressive in the price reviews of their long-term supply contracts indexed to oil prices. Japan has also liberalized its energy markets, meaning that utilities are competing against each other and for lower-cost power sources, as the old ‘pass the higher costs on to consumers’ strategy doesn’t work anymore in this more competitive market.

The other key reason for intensified price reviews of LNG contracts is that this year’s depressed spot LNG prices in Asia are now half the price compared to the average price of the term contracts that Japanese utilities have signed, according to Japanese trade data and Reuters estimates.

By Tsvetana Paraskova for Oilprice.com

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