Biggest LNG Buyers Seek Alliance to Boost Bargaining Power

LNG carrier Asia Vision. Photo credit: Chevron

By Tsuyoshi Inajima and Emi Urabe

(Bloomberg) — Japan’s Jera Co. said it’s in talks with other LNG companies to create an alliance of buyers that account for more than one-third of global trade.

Jera, a joint venture between Tokyo Electric Power Co. and Chubu Electric Power Co., is seeking to cooperate with Korea Gas Corp. and China National Offshore Oil Corp. on liquefied natural gas procurement and investment, said Hiroki Sato, vice president of the company’s fuel buying department. A memorandum of understanding may be signed as early as Friday, he said.

A deal between the companies may lead to the creation of a potentially dominant bargaining alliance as buyers band together to take advantage of new supply from Australia to the U.S. that’s tilting negotiating power in favor of consumers.

“The impact such an alliance could have now is bigger than before,” James Taverner, a Tokyo-based analyst at consultant IHS Inc. “If the alliance allows flexibility between members to balance their LNG import volumes, that is very attractive for buyers.”

The deal will benefit smaller companies outside the group as lower prices would be passed on to other buyers, Sato said. The alliance members would also be able to swap or trade cargoes among themselves to help balance supply between their operations.

Work Together

“We can work hard to lower prices by using our large volumes,” Sato said in an interview in Tokyo on Thursday. “The bottom line is we should work together to reduce costs in Japan, as well as the rest of Asia.”

Song Kyu Cheol, a spokesman for Kogas, said representatives of the three countries are in talks and no further details are available. Nobody answered calls to China National Offshore’s press office in Beijing on Friday and two e-mails seeking comment.

Asian spot LNG prices fell below $5 per million British thermal unit for the first time last month, extending its tumble from a high of $19.70 in February 2014, according to New York-based Energy Intelligence. Cargoes bought through long-term contracts, which are traditionally linked to oil, may fall to a low of about $4.10 per million Btu by June, Credit Suisse Group AG said in a report Feb. 5.

Global Trade

Jera has said the combined Tokyo Electric and Chubu Electric purchases would be about 40 million metric tons a year of LNG. Korea Gas imported 31.4 million tons in 2015 and China National Offshore imported 14.1 million tons in 2014, according to the companies. Global LNG trade rose 1 percent in 2014 to 239.2 million tons, according to the latest annual report by the International Group of Liquefied Natural Gas Importers.

“It is very interesting and exciting to see Japanese, Korean Chinese buyers pulling together,” Joseph Jacobelli and Lu Wang, analysts with Bloomberg Intelligence, wrote in an e-mail. “However, we need to keep in mind that, as of now, the bulk of the market is not spot but a long-term contract market, so the short term impact on price may be muted.”

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