Buyers of liquefied natural gas ( LNG ) in Asia are increasingly edgy on term deals for supplies as they watch a stream of investments in production come on line and note a shale gas revolution in China, India and even Indonesia remains a strong prospect as plans for terminals and storage show.
This week, China’s Sinopec said it had started work on the country’s largest natural gas storage and logistics center in Henan province with the capacity to store up to 10 billion cubic meters (bcm) of gas by May 2018. That plan is part of an effort to clean the air by switching from coal, but it doesn’t see all of that gas coming from imports.
At the same time, the world’s top LNG producer Qatar is telling top customers in Japan asking for cheaper contracts in the face of a supply glut to be mindful that major projects already built or in the works that involved major Japanese firms.
The world’s top LNG buyers — Japan and South Korea — have already banded together with Tokyo Electric, Chubu Electric and Korea Gas Corp suggesting that earlier contracts signed when supplies were tight cannot be enforced blindly as new technologies and supply change the market drastically.
How they attempt to get out of the deals – arbitration, new negotiations, or plain old no more – is key as Asia buys 70% of global LNG supply.
“A game of musical chairs is underway on the trading side of what was a fairly predictable market a few years ago,” a Singapore LNG trader said. “The big issue is whether market prices come in like the U.S. Henry Hub, or some regional plan.”
Asian spot prices however have dropped well below some term contracts handily above $10 per million British thermal units (mmBtu) in the past three year to around $5.50 per mmBtu as Australia and other regional players along with exports from the U.S. jockey with key Middle Eastern producers.
U.S. natural gas for June eased 2.07% to $3.080 per mmBtu on Wednesday.
But major producers and sellers like Royal Dutch Shell, the world’s biggest listed LNG company, or Chevron are keeping close tabs on Asia. They area also playing a waiting game, with forecasts for higher demand in their favor, but at a long-term pace for now.
“A lot of money was invested in big LNG projects in Asia and the Middle Ease at term prices,” the Singapore source said. “If they don’t get those prices, a lot can happen on outstanding debt and even the ability to keep the projects going.”
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