Japan’s No. 1 liquefied natural gas (LNG) importer, Jera, has called for more cooperation and creativity to help the industry navigate ongoing challenges, Kallanish Energy reports.
Speaking at the Japan LNG & Gas virtual summit, on Wednesday, Jera’s senior executive officer Hitoshi Nishizawa said the global LNG market was already “dull and oversupplied” before the Covid-19 pandemic.
Depressed Asian demand, warm winters, and the new wave of supplies from Australia, Russia, and the U.S. were already troubling the LNG industry. The pandemic worsened conditions. It caused a significant drop in global gas demand, operational challenges across the LNG chain, cancellations, shutdowns, curtailments, diversion, sell-offs, and force majeure, he said.
Other mid-term impacts on the market include a more serious, prolonged supply glut; push back on supply-demand rebalancing timing; delays in project construction and final investment decisions; and potentially an acceleration of coal-to-gas switch.
Jera and other Asian buyers have long pushed for flexibility on contracts, and particularly the removal of the destination clause, which prevents buyers to resell the LNG to other markets. Japan has been successful in achieving such terms with new supply from the U.S., but renegotiation of contracts continue, with companies seeking “more tradability and liquidity.”
The head of LNG procurement at Jera said buyers are worried about the volume and speed of a demand recovery, second and third waves of Covid-19, mild weather, and the “demand in the new normal.”
“The traditional Asian long-term sales and purchase agreement with rigid terms and conditions is no longer suitable for a rapidly changing market,” said Nishizawa. Term pricing needs to reflect market conditions, he added, noting spot price is globally converging and deliking from oil.
Buyers are struggling to deal with contractual commitments and unprecedented demand declines. The officer said there’s increased exposure to amplified volatility and disparity, so “term contracts should have capabilities to reflect spot market.”
“Understanding, cooperation, and creative approach are essential,” he said.
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