Asian LNG seen bracing for more flexible pricing
ROME, Italy – Without yet a well-defined “market pricing” for the transformed and expanding global liquefied natural gas (LNG) industry, it is seen that players will have to deal with more flexible pricing strategy when it comes to contractual arrangements.
During the 16th World LNG Summit here, global industry players have sounded off that LNG cannot advance into its anticipated “golden age” because it is being squeezed out by cheaper coal and the continuing downtrend in the cost of renewables.
In the case of some Asian countries, primarily for Japan, there have been moves to revert to nuclear as an option because they tend to be cheaper and the technology is not also problematic on carbon emissions dilemma.
Given these prevailing conditions, the view of the industry is for the Asian LNG market – which relied traditionally on long-term LNG supply contracts, to be shifting more into a liquid spot market.
The global industry players have reiterated that the weakening oil prices and diversification of markets from oillinkage have been the pricing transformation triggers in the LNG sector.
Philip Olivier, chief executive officer of Engie Global LNG, has noted that “Asian and European spot prices tend to converge with long-term prices.”
It has been prescribed then that LNG buyers and sellers will have to be more creative in firming up their deals putting into consideration the different circumstances overwhelming competing fuels and technologies.
According to Frédéric Barnaud, executive director for marketing and trading of Russian firm Gazprom, one critical consideration for the sector is “seeing the end of traditional utility buyers” especially in a low-price environment for oil.
From the traditional long-term contracts especially in the era of conventional gas, he indicated that “mid-term contracting will be the norm.”
For Kunio Nohata, senior executive officer of Tokyo Gas Co. Ltd., the challenge for new pricing mechanism for gas is on providing “competitive pricing with stability for consumers while reducing the price risk for producers.”
He reckoned though that it is still a major hurdle for the global industry “to make gas the most affordable, acceptable and reliable form of energy.” This after previous perceptions that the Asian market will accept gas at any price had turned out to be wrong.
For gas sellers to be successful, it has been stressed that it will be important for them to understand the changing needs of buyers and to work with their purchasers to create solutions.
Meg Gentle, president of US firm Chenerie Marketing which is into development of platform for LNG sales to international markets, has added that the market is now opting for a more transparent pricing and that makes “the cost curve getting more important.”