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Japanese Buyer Foresees Asia-Based LNG Pricing

The liquefied natural gas (LNG) market will see more spot cargoes and shorter contracts over the next decade as the LNG industry evolves and grows supply, a major Japanese LNG buyer said.

Japan-based JERA Co. Inc. President Yuji Kakimi, said the global LNG sector should expect to see new buying and pricing trends emerging as the industry moves to one of greater supply volumes and greater choice in sourcing.

"This would generate a gradual move away from long-term contracts to shorter and mid-term agreements, and a further rise in the current upwards trend for spot cargo purchases," Kakimi said. He is to address the LNG 18 conference in Perth, Australia, in April. He made similar comments in Houston last week at the IHS CERAWeek conference (see Daily GPIFeb. 24).

Kakimi said that while the recent ratio of spot transactions, including short-term deals, has rapidly increased, nonetheless the majority of long-term transactions are still based on a formula linked to oil prices. "This poses a dilemma for current LNG suppliers whose returns are under pressure because of the sustained slump in oil prices," he said.

"However, I plan to detail to LNG 18 delegates, why I think that in 10 years' time, a specific Asian LNG pricing market will have emerged that has measurable liquidity and whose transactions within that market environment, regardless of scale or stakeholder interests, are transparent in their pricing."

In February JERA updated its global business strategy based around expanding its LNG and other energy sector involvement in coming years in its key target markets of Asia, the Middle East and North America.

Tokyo-based JERA -- owned 50% by Tokyo Electric Power Co. and 50% by Chubu Electric -- is involved in new upstream energy investments, fuel procurement, thermal power plant development, energy infrastructure and fuel transportation and fuel trading. The company has contracted LNG volumes on its trading books of about 40 million tonnes per annum.

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