India seeks to cash in on LNG glut
India is encouraging LNG importers to rework long-term accords to better align costs with spot
market prices amid bid to make natural gas more affordable for users
The market for liquefied natural gas (LNG) is about to attract more players and more trading as new
supply from the US and Australia strengthens buyers’ bargaining power.
Historically, LNG has been sold on long-term contracts that guaranteed buyers supply and helped
producers finance liquefaction plants at a time when less of the product was shipped. Now, a natural
gas glut is causing countries that import LNG to support renegotiating existing deals that can run 20
years or more as suppliers lower their prices in a move to shrink stockpiles.
India already is encouraging importers to rework long-term accords to better align costs with spot
market prices. Japan, the world’s largest LNG importer, may soon join them. That country’s Fair
Trade Commission is in the process of probing resale restrictions in longer deals in an effort that
could mean the renegotiation of more than $600 billion in contracts and boost the number of
shorter-term agreements.
“There will be 40 million to 50 million tonnes of homeless LNG by 2020, which can go anywhere or
doesn’t have any fixed customers,” said Hiroki Sato, a senior executive vice president with Jera Co., a
fuel buyer that plans to increase spot and short-term LNG deals. “Homeless LNG will provide a great
opportunity to improve liquidity in Asian and global markets.”
Global LNG trade rose 2.5% to a record 245.2 million tonnes in 2015, according to the International
Group of Liquefied Natural Gas Importers. A million tonnes of the supercooled fuel is equivalent to
about 48 billion cubic feet of natural gas, which is enough to heat about 690,000 homes for winter in
the US Northeast.
About 28% of LNG traded in 2015 was on a spot or short-term basis, according to the importers’
group. That’s up from 18.9% in 2010, according to the group.
Asian spot prices for LNG have already slumped by about 60% since September 2014 amid new
supplies. Additional projects like Inpex Corp.’s Ichthys project in Australia and the Cove Point export
terminal on the US East Coast that are expected to begin operation in 2017 may weaken prices by
almost a fifth over the next two years, according to BMI Research.
Japanese traders are getting ready for the opportunities that would arise if that nation’s Fair Trade
Commission determines destination clauses in long-term contracts, which prevent resale of the fuel,
violate competition laws. US shale gas already has shaken up markets as American producers write
contracts that allow buyers to resell LNG wherever they want.
Trade flows
As the oversupply intensifies next year to the point Asian buyers can’t absorb the surplus, new
trading flows may emerge from Asia to Europe, according to Kazuhiko Inomata, a deputy director
with Itochu Corp., Japan’s third-largest trading house.
Itochu plans to increase its LNG staff in Singapore by two to three people within two years,
according to Inomata. Japanese rival Mitsui & Co. aims to increase the number of LNG traders at its
Singapore subsidiary to as many as six over one to two years, the company said in July. The South-
East Asian city state is competing with Shanghai and Tokyo to be a regional hub for the fuel.
Itochu has leased an LNG tank at South Korea’s Gwangyang terminal that is one of only handful in
Asia that can receive the fuel and then re-export it. Commodities trader Trafigura Beheer BV has
similar capacity through a storage and re-loading site in Singapore.
European resale
Jera, a joint venture of Chubu Electric Power Co. and Tokyo Electric Power Company Holdings Inc.,
plans to resell LNG to Europe as it seeks to expand trading operations. Sumitomo Corp., the fourth-
biggest Japanese trader, is said to be considering starting a LNG trading office in Europe.
India, which aims to more than double its regasification capacity to 55 million tonnes within five
years, wants to turn the oversupply to its favour as it seeks to make natural gas more affordable for
users and increase the fuel’s use in its energy mix, Oil Minister Dharmendra Pradhan said in an
interview. Natural gas currently accounts for about 7% of the South Asian nation’s fuel basket.
The world’s fourth largest LNG buyer was among the first countries in Asia to renegotiate a long-
term deal after Petronet LNG Ltd. in December reworked a 25-year contract with Qatar’s RasGas Co.,
resulting in prices dropping by almost half. GAIL India Ltd. is seeking to defer a 20-year supply deal
with Gazprom PJSC signed in 2012 and has said it will consider getting LNG from other sources at
prices closer to spot-market rates.
“It isn’t necessarily that spot LNG is always cheaper than those supplied under long-term contracts,”
said Kentaro Kimoto, an executive officer at Tokyo Gas Co., which has traditionally relied on long-
term deals. “But we will need to start buying some LNG under spot or short-term contracts to
minimize the divergence with market prices.”
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