LNG Sellers Retain Leverage Despite Joint Purchase Pressure


BMI View: Chubu Electric and GAIL India's MoU for joint LNG procurement could pave the way for similar deals to follow among Asia's LNG buyers. This has the potential of creating a dominant buyer in the LNG market. However, we maintain that the advantage in LNG price negotiations will still remain on the side of sellers, as most Asian buyers have to obtain these supplies or risk a power shortage in their home countries.

Asian buyers of liquefied natural gas (LNG) have advanced moves to jointly procure supplies in a bid to put downward pressure on prices. Japan's Chubu Electric and GAIL India signed a Memorandum of Understanding (MoU) for this purpose on March 21 2014, building on a preliminary agreement reached between the two companies in January. In addition, South Korea's Kogas has been in talks for a similar arrangement with undisclosed Japanese firms. Further joint procurement of LNG supplies by Asian buyers could effectively form a cartel that could bear significant pressure on LNG prices.

Asia has the world's largest demand for LNG, with Japan and South Korea holding the position of the world's first and second largest LNG markets respectively in 2013. The region has a 55% share of total contracted LNG volumes in 2014, and this is a share that is set to grow to 68% by 2023 according to LNG sales and purchase agreements (SPA) signed in the market to date.

LNG Purchases: An Asian Play
Global Distribution Of Contracted LNG Volumes, 2014 vs. 2023

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Related sectors of this article: Oil & Gas, LNG
Geography: Japan, India