India, Japan join forces to control costs of liquefied natural gas imports.

Japan and India are planning a liquefied natural gas importers’ group in a bid to reduce the ‘Asian premium’ and diversify their import sources.

“The LNG prices in Asia are substantially higher than those of other major consuming regions such as Europe and North America,” Toshimitsu Motegi, Japan’s Minister of Economy, Trade and Industry, Japan and M. Veerappa Moily, India’s Minister for Petroleum and Natural Gas, said in a joint statement on September 9 after a meeting in Tokyo.

“Even as the position of natural gas as an alternative fuel for oil is fading and the rationality for such price formation is less clear compared to past, the majority of LNG contracts in the Asia Pacific market are long term with a pricing formula that is linked to the oil price,” the statement said.

Asian LNG importers such as Japan and China paid as much as $15.75 per million British thermal unit this month, compared to $2.97 paid by LNG buyers in U.S. Gulf Coast and $9.79 by British consumers, according to the U.S. Federal Energy Regulatory Commission.

Japan, the world’s biggest importer of LNG, raised imports of the chilled gas by 12 per cent in 2011 and another 11per cent in 2012 in the aftermath of the Fukishima nuclear disaster. The country spent US$60-billion on LNG imports in 2012, a figure that’s expected to balloon to US$72.1-billion this year.

Similarly, India’s LNG imports are expected to rise 19 per cent this year, according to industry estimates.

Both countries are struggling with higher fuel imports especially due to their weakening currencies.

China, South Korea, Taiwan and Singapore are also major consumers of LNG and are expected to lead LNG demand. Asia-Pacific countries are expected to account for 64 per cent of LNG demand by 2020, according to an RBC Capital Markets report.

Japan and India are also seeking co-operation with other LNG importers to improve their bargaining positions with energy exporters.

“Japan and India, as major LNG consuming countries in Asia, will work together towards the development of a market environment that would enable effective, stable and globally competitive LNG procurement.”

The Asian companies’ desire to fetch lower prices may impact the economics of a number of LNG projects. Companies seeking to develop LNG facilities on the Canadian West Coast and the U.S. Gulf Coast are hoping to fetch better prices than the $2-$3 per mBTU they are currently getting domestically.

“North American exporters will also compete with potential newcomers and existing LNG exporters, as well as deal with an increasing domestic natural gas price as new domestic demand emerges,” said the Canadian Energy Research Institute in a report published last week.

“Consequently, exporting LNG is becoming increasingly risky and less lucrative for North American companies. Nonetheless, there is room for some North American exports in the emerging Asia-Pacific market.

The Asian importers’ desire to diversify their LNG sources could work in Canada’s favour as Asia overwhelmingly depends on imports from the Middle East including troubled regimes in Yemen and Algeria.

Iran, Qatar and Russia have been trying to develop a natural gas-equivalent of OPEC with the Gas Exporting Countries Forum for more than a decade. But the 10-member forum, which also features four observers including the Netherlands and Norway remains a discussion forum for now.

Source : vancouversun.com