Head of Asia Pacific, Business Intelligence
Poten & Partners
16:50 - 17:15
Tuesday, 17 September 2019
S1.2 Examining North Asian Buyers' Shifting LNG Procurement Patterns
The LNG procurement behaviour of the large North Asian LNG buyers Japan, China, Korea and Taiwan is changing. Such shifts can have a big impact on the global LNG market, given that that collectively they will account for over 55% of global LNG demand this year, according to Poten estimates.
Some of these changes are driven by domestic and regional considerations and others are a function of the global shift to a more commoditized LNG market. In turn, North Asian producers’ responses to changing contracting and trading patterns reinforce and help shape the global LNG market itself.
We look at how national policies that determine overall LNG demand, such as the need to replace dirtier fuels and nuclear energy, or the increase in pipeline supply to China, are expected to drive contracting strategy.
Against this backdrop, we look at the pricing signal North Asian buyers are receiving from the increasing number of final investment decisions for liquefaction projects, both already announced and planned. We assess whether North Asian buyers’ desires for supply security through diversification will continue to encourage them to sign long-term contracts with greenfield project sponsors, despite the global trend towards shorter term and spot trading.
We also examine how North Asian buyers are responding to:
- The growing role played by traders and portfolio players, including, in some cases, their own adoption of a portfolio methodology
- The overall push for optimization. Both sellers and buyers want to develop their own portfolios, and this has implications for the physical market
- Opportunities for upstream investment. This also influences contracting strategy
- Increased flexibility, such as seasonal changes and diversion rights, and sellers’ desires for equal profit-sharing clauses,
- Wider market acceptance of shorter contracts, which is contributing to the increase of spot trading against the JKM index in Asia
- The greater number of pricing options, aside from indexation to crude oil, such as US Henry Hub or even hybrid contracts that include European benchmarks such as NBP combined with slopes to Brent crude
- The increased risk of buying against oil or pipeline gas prices as the market becomes more complex. As a result, North Asian buyers want liquid LNG pricing benchmarks, such as JKM and JLC and to be able to lay off risk on exchanges. This has contributed to the upsurge in JKM futures trades on the Intercontinental Exchange
We look at all of these changes and attempt to suggest what broad buying patterns are expected to emerge over the coming years from Japan, China, Korea and Taiwan.