GLM COMMENT: Asian LNG buyers study local partnerships, broader energy indices

LONDON (ICIS)–The need to maintain competitive LNG prices while reducing methane emissions are key priorities for buyers, said delegates at the World LNG Virtual Summit this week.

Key Asian LNG buyers also want to link supply and price mechanisms more closely with renewables and new energy sources.

Buyers discussed the possibility of more flexibility and local partnerships.

They also touched on the possibility of new indices based more on local energy prices as renewable generation, hydrogen and ammonia come online – even as the transition from coal to gas continues.

Taiwan incumbent CPC’s vice president Jane Liao warned that new “rising stars” in energy are coming, and faster than current market expectations. This makes it hard to plan for future natural gas prices, even if LNG supply will remain key over the next 30 years.

Delays and cancellations to planned LNG projects around the world could also lead to price fluctuations over the coming decade, delegates warned, threatening price competitiveness.

“It will really depend on what you compare [LNG prices] with,” said Liao.

“We should introduce an Asia market price index,” said JERA senior executive vice president Hiroki Sato, adding that this should be “not a gas index but an energy index…If we share the same [price index] across the Asia market we can encourage the flow of product inside Asia.” He suggested that companies including in Japan, Taiwan, the Philippines and Indonesia could do this together through partnerships.

Delegates also said the coronavirus crisis has accelerated the impetus to move to renewables in Asia, with repercussions for gas markets post 2030.

“This [gas] preference will be the same, at least towards the 2030s,” said JERA senior executive vice president Hiroki Sato, “but towards the 2050s, with the acceleration of the move to decarbonisation, I think the concept of the time [or long-term] contract itself, will be gone,” making the introduction of a mechanism for local partners more important.

The introduction of carbon mechanisms, as well as a higher proportion of spot LNG cargoes, will increase competition among fuels, including in China. Liao also suggested that an alternative to a US dollar-based mechanism could be found regionally to improve flexibility, competitiveness and transparency for buyers in Asia.

A significant proportion of long-term LNG contracts into Asia are due to expire between 2023-2025, with little incentive for buyers to sign long-term deals, said speakers.

Energy transitions will also create greater differentiation between Asia-Pacific buyers, said Liao, with countries like the Philippines and China still expected to increase gas consumption over the coming two decades as they transition away from coal.

The move to carbon-emission reporting and offsets could also help regional companies cooperate more closely, said delegates.

“Asian countries can’t do this without a market mechanism,” said Sato. “So [we could perhaps] deal with the cost with tariffs,” he said, adding that such mechanisms will also be key to the price competitiveness of LNG.

“To get net carbon zero emissions I do believe that parties in the whole region, the seller-buyer relationship on this, needs to be intensified,” said Petronas chief commercial officer Shamsairi Mohd Ibrahim.

Kunio Nohata, vice president of Tokyo Gas, said there could be a Japan-market index that takes ecological impact into account. This could let Asia buyers set the standards on which they engage with global producers.