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2014-03-24 09:00:00

ASIA: PRICES WILL BE HIGH

ASIA: PRICES WILL BE HIGH

REUTERS. State-run Korea Gas Corp (KOGAS) and a Japanese company bought natural gas jointly on Monday and such rare cooperative purchases will become more common, the head of state-run Japan Oil, Gas and Metals National Corp (JOGMEC) said.

The world's top two buyers Japan and South Korea, along with China and other Asian gas importers, have been unhappy about paying higher prices than the United States and Europe due to strong regional demand. Asian buyers took about 70 percent of global liquefied natural gas (LNG) exports last year.

Besides earlier talks between Japan's Chubu Electric Power Co and India's gas utility GAIL on a joint purchase, Asian buyers have also been discussing forming a gas buying group to command better contract terms and pricing.

Asked about progress in forming a gas buyers' club, Hirobumi Kawano, president of JOGMEC told Reuters in an interview: "We know there is a discussion. Maybe that will happen."

He provided no further details on Monday's joint deal and did not identify the Japanese company.

"This kind of activity will increase for getting cheaper prices and strengthening bargaining positions," said Kawano, who is in South Korea this week for an international gas conference.

Spot LNG prices in Asia are running around $18 per million British thermal units (mmBtu), including processing and shipping costs, against U.S. prices of around $4.35 per mmBtu.

A spokesman at KOGAS, the world's largest corporate buyer of LNG, said he had no knowledge of the joint deal.

China, India, South Korea, Japan and Taiwan held talks on forming a buyers' group last year but made no firm plans. They were set to meet in February to discuss the club and other ways of cutting prices, but the meeting was delayed.

Japan's political tensions with its neighbours China and South Korea have partly contributed to the slow progress towards forming a buyers' group, according to some industry sources.

In January, Tokyo Electric Power Co said it was planning to enter talks this year with domestic and foreign firms for joint procurement in an effort to reduce costs.

JAPAN GAS DEMAND

Kawano said he expected Japan's natural gas demand in 2014 to be about level with last year, despite the chance that some of the country's nuclear power plants might be restarted.

"It's limited to a certain number of plants. On the other hand, Japan's economy will grow from last year, so maybe demand for LNG by Japan will stay almost the same level," he said.

He expected gas prices in Asia to remain high.

Supply from Australia, East Africa, North America and Russia should increase in coming years, however, and that could change the pricing framework, said Kawano separately in the gas conference on Monday.

A massive earthquake that struck Japan's east coast in 2011 crippled the Fukushima nuclear plant, which continues to leak radiation. The disaster and leak have turned the Japanese public against nuclear power, and all of the country's 48 operable reactors remained shut down.

That has prompted higher use of coal and gas, with imports of LNG and thermal coal both rising to record levels last year.

In 2013, Tokyo imported a record 87.49 million tonnes of LNG, paying a highest-ever 7.06 trillion yen ($68.98 billion) for the fuel.

A Tokyo Gas Co official, meanwhile, said he expected Japan's gas demand to fall with the nuclear restarts.

Two to three nuclear reactors will be restarted, and with each unit, LNG purchases for the year will drop about one million tonnes, said Shigeru Muraki, vice chairman of Tokyo Gas.

"And then that programme will accelerate, I hope, and in the next three years, 15 to 20 units will be restarted, so it means (a decline of around) 15 million to 20 million tonnes," he said.

Tags: ASIA, JAPAN, GAS, OIL, DEMAND

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