Flexible LNG supply is needed to meet the variable demand for electricity.
Industry executives stated on Tuesday that Japan and other major LNG buyers want more flexibility to adjust to changing power demands. Qatar and other LNG suppliers prefer long-term agreements with buyers, which can last for decades. This is to secure funding for multi-billion-dollar projects.
In recent years, with more producers entering into the global market, buyers have sought shorter-term contracts that allow them to resell their cargoes if demand is low.
Jonathan Westby said at an industry conference that JERA Global Markets in Japan, which deals with 40 million metric tonnes of LNG per year, is looking for flexibility in their long-term and short-term contracts to deal with the uncertainty they face.
He said that the company has a more unpredictable and variable customer base and purchases and sells LNG based on weather conditions and nuclear power availability.
Although the outlook for Japan's LNG consumption is declining due to nuclear reactor restarts, and increased renewable energy sources, it is unclear how fast this decline will occur.
Last year, nuclear power generated 9% of Japan’s electricity.
Japan closed all 54 reactors in 2011 after an earthquake and tsunami caused a meltdown of the Fukushima Nuclear Plant. Japan has 11 nuclear reactors. The restarts have contributed to a 8% drop in LNG imports in the past year, which is the lowest level in 14 years.
Zhang Yaoyu is the global head of LNG at PetroChina International. He said that power demand in top LNG importer China fluctuates by season and region.
He said, "Unfortunately, in China we live in a world where there is a huge imbalance between supply and demand."
The Asia Gas Markets Conference brought together buyers from both companies and they all agreed that supply diversification was key to managing fluctuations in demand.
Sungbok Park, chief marketing officer at Mexico Pacific, said that although long-term contracts are preferred, contract terms have evolved on both the buyer and seller side in order to allow for more flexibility when managing volume.
He said that existing producers and suppliers of portfolios are becoming more open to flexible contracting structures as the market continues to change.
For new projects we need to have 15-20-year commitments in order to meet the project financing requirements.
Steve Hill, Executive Vice President at Mercuria, stated that intermediaries can help bridge the gap between buyers, and sellers.
Over time, the wants of buyers and producers diverge. He said that producers are looking for long-term contracts to finance projects, while buyers have to deal with more uncertainty.
"There is a greater need in the world for intermediaries who can manage the risks between what buyers and producers want."
(source: Reuters)
