The world's top LNG buyers and producers are returning to Tokyo next week for a third round of public forums, and discussion is expected to focus on whether prospective gas-linked US supplies will still be cheaper than traditional oil-indexed contracts given crude benchmarks recently dropping to near four-year lows.
Japan's Ministry of Economy, Trade and Industry broached the issue of LNG pricing for Asian markets at its first LNG Producer-Consumer Conference in 2012.
Last year, the conference hashed out the debate of whether to move away from oil-linked contracts in response to new North American and African gas supplies.
This year, changing patterns and flexibility in LNG trade resulting from US exports expected to start flowing in a few years will be a key topic at the November 6 conference, Shinichi Kihara, METI's director of international affairs division, said Thursday.
About 1,000 delegates representing 90% of the global LNG trade are expected to attend, including ministers and senior officials from producing and consuming countries as well as national and international gas companies, Kihara said.
The keynote speakers are Qatari Oil Minister Mohammed al-Sada, Australia's Minister for Industry Ian Macfarlane, Canada's Minister of Natural Resources Greg Rickford, India's Petroleum and Natural Gas Minister Shri Dharmendra Pradhan, South Korea's Vice Minister of Trade and Industry Jaedo Moon and the International Energy Agency Executive Director Maria van der Hoeven.
On the sidelines of the conference, van der Hoeven is launching the IEA's first publication on the LNG market and a mid-term outlook, Kihara said.
Dai Jiaquan, director of oil market department at CNPC Economic & Technology will be the conference series' first speaker from China.
From the US, delegates include Christopher Smith, principal deputy assistant secretary, office of fossil energy at the Department of Energy; Joseph Balash, commissioner of the Alaska Department of Natural Resources; Oregon LNG CEO Peter Hansen; Don Althoff, president and CEO of Veresen; and Cheniere Energy Chairman Charif Souki.
CHANGING MARKET DYNAMICS
The US has approved LNG exports totaling up to 80 million mt/year to countries without free trade agreements, which accounts for roughly half of major Asian consumers: Japan, South Korea, China, Taiwan and India, Kihara said. The prospective US supplies -- indexed to Henry Hub natural gas prices without destination clauses -- are increasingly having impact on the global LNG trade practices, he said.
In the case of Japan, the world's largest LNG importer, companies have signed natural gas liquefaction tolling agreements to lift up to 16.9 million mt/year of prospective US LNG supplies at Henry Hub prices from the Cameron, Freeport and Cove Point export projects.
The aggregated supply from those three US projects would amount to roughly 19% of Japan's current total LNG imports of around 88 million mt/year if all of the prospective supplies are brought back to Japan.
Currently, more than 90% of Japan's LNG imports are estimated to be linked to crude oil prices.
A major motivation for Japanese companies to secure supply deals with US LNG exporters was the assumption that the gas could be cheaper than oil-linked contracts when crude remained above $100/barrel, according to industry sources.
But with current international crude benchmarks hovering around $86/b, US LNG prices would be more expensive than oil-indexed LNG on a landed basis to Japan if the US supplies start at the current crude price level, a source with a Japanese buyer of US LNG said.
"But we have factored in the situations like today when making decision to procure US LNG," said the source, adding that the US LNG supplies would be meaningful to diversify Japanese buyers' price indexation as well as supply sources.
