Ja­pan’s ruling on LNG has tilted the field in favour of buy­ers

Ja­pan reg­u­la­tor re­moves re­stric­tions on re­sale by buy­ers of seaborne car­goes

The National - News - Business - - Front Page - An­thony McAu­ley am­[email protected]­tional.ae

A ruling by Ja­pan’s trade reg­u­la­tor against re­sale re­stric­tions on liq­ue­fied nat­u­ral gas (LNG) ship­ments will have wide­spread im­pli­ca­tions for boom­ing seaborne gas trade, mostly in favour of buy­ers. The Ja­pan Fair Trade Com­mis­sion (JFTC) on Wed­nes­day con­cluded a long study of LNG trade with a ruling that con­tracts should no longer have re­stric­tions on the re­sale by buy­ers of car­goes once they have taken ti­tle.

The move echoes that taken by the Euro­pean Union in the early part of this cen­tury, but will af­fect the re­gion that is home to the world’s largest LNG mar­kets – Ja­pan and South Korea – and its fastest-grow­ing ones, es­pe­cially China.

“Cer­tainly this ruling means the balance of power in the LNG mar­ket has moved from seller very strongly to the buyer,” said Kelly Anne Shanks, the head of Asian LNG re­search at con­sul­tancy Wood Macken­zie.

Ja­pan, the world’s largest im­porter of LNG, be­gan to study the mar­ket last spring with the aim of bring­ing more flex­i­bil­ity to the mar­ket, es­pe­cially given that a huge wave of new sup­ply from projects in north­ern Aus­tralian, Pa­pua New Guinea and elsewhere had changed the land­scape and loos­ened the grip of the dom­i­nant sup­plier, Qatar.

The new ruling is part of a broader trend whereby buy­ers have been able to ne­go­ti­ate more flex­i­ble terms in con­tracts, as well as the de­vel­op­ment of a spot mar­ket in LNG.

“The mar­ket was al­ready mov­ing in this di­rec­tion and new con­tracts in gen­eral have be­come a lot more flex­i­ble,” said Emma Richards, se­nior oil and gas an­a­lyst at BMI Re­search. “But the JFTC ruling cer­tainly ac­cel­er­ates that process.”

Ja­pan’s move is likely to be fol­lowed by other large Asian mar­kets. “Where Ja­pan leads, oth­ers fol­low,” said Ms Shanks. “Other big im­porters – South Korea, China, In­dia – prob­a­bly will be look­ing very closely at the de­ci­sion and won’t want to ac­cept worse terms than Ja­pan is get­ting.”

Global LNG trade has been on a long up­swing and hit a record 258 mil­lion tonnes last year, up 5 per cent on the year be­fore, ac­cord­ing to the In­ter­na­tional Gas Union, a trade body.

While Ja­pan’s growth has been lev­el­ling off and is ex­pected to con­tinue to do so as it rein­tro­duces nu­clear power that was shut down af­ter the Fukushima dis­as­ter, mar­kets in­clud­ing China, In­dia, and Pak­istan added a com­bined 13 mil­lion tonnes last year. South Korea’s LNG de­mand also has been reach­ing a plateau, but the new en­ergy pol­icy set out by the president Moon Jae-in em­pha­sises gas growth for the fu­ture at the ex­pense of coal and nu­clear.

While the Ja­pan ruling gives buy­ers more flex­i­bil­ity, it is good news for the mar­ket in gen­eral in that it fos­ters its growth and ul­ti­mately will also ben­e­fit sup­pli­ers, once de­mand catches up with sup­ply.

“The ruling is likely to bol­ster trad­ing ac­tiv­i­ties and as­sist the de­vel­op­ment of trad­ing hubs in the re­gion,” said Eugene Lin­dell, an an­a­lyst at JBC En­ergy in Vi­enna.

“Ba­si­cally we’re look­ing at a more fluid trade in LNG, which on the whole is a good thing,” said Ms Richards. “But it does mean you’re likely to see more spot car­goes be­com­ing avail­able at a time when the mar­ket is al­ready loos­en­ing. So, bear­ish for prices.”

The UAE is a net im­porter of gas but also ex­ports LNG and has am­bi­tions for large-scale gas ex­ploita­tion – es­pe­cially its on­shore and off­shore sour gas­fields – as well as to de­velop as a re­gional trad­ing hub and to take ad­van­tage of the grow­ing LNG ship bunker fuel mar­ket.

Is­sei Kato / Reuters

Liq­ue­fied nat­u­ral gasstor­age tanks at Futtsu, east of Tokyo. Ja­pan is the world’s lead­ing im­porter of the commodity.

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