Top LNG buyers form alliance to secure flexible contracts

SEOUL/TOKYO: The world’s biggest liquefied natural gas (LNG) buyers are clubbing together to secure more flexible supply contracts in a move that further shifts power to buyers.

Korea Gas Corp (Kogas) said yesterday it had signed a memorandum of understanding with Japan’s JERA and China National Offshore Oil Corp to exchange information and “cooperate in the joint procurement of LNG”.

Japan, China and South Korea are the world’s biggest LNG importers, accounting for about 55 per cent of global purchases, according to data from energy consultancy Wood Mackenzie.

The countries’ biggest respective buyers are joining together to extract concessions from producers that would give them supply flexibility, such as having the right to re-sell imports to third parties, something they are not allowed to do under destination restrictions.

“We have created a platform to share, discuss and solve our common issues such as traditional LNG business practices, including destination restrictions,” said JERA spokesman Atsuo Sawaki.

The unusual alliance of three buyers across three countries will pressure exporters like Qatar, Australia and Malaysia, who prefer to have clients locked into fixed supply contracts that oblige buyers to take fixed amounts of monthly volumes irrespective of demand, with no right to re-sell unneeded supplies to other end-users. Reuters