Asian push for lower prices may hurt Canadian LNG projects – by Yadullah Hussain (National Post – March 28, 2013)

The National Post is Canada’s second largest national paper.

Canadian projects will be under more pressure than most to link to Henry Hub, given the current linkage with the U.S. market

Alarmed by the 13.4% jump in its natural gas import bill last year, Japan is planning a new energy strategy that could change how natural gas is traded around the world and put pressure on some of the proposed Canadian liquefied natural gas projects.

The world’s largest LNG importer, which paid a US$68-billion LNG import bill last year, is offering US$11-billion in loan guarantees to Japanese companies to source liquefied natural gas from the United States.

Tokyo is also eyeing a seat at the U.S.-led Trans-Pacific Partnership negotiating table, as U.S. law only allows LNG exports to nations with which it has a trade agreement. Meanwhile, President Abe Shinzo has been pushing President Barack Obama to allow U.S. companies to export gas to his country.

The Japanese Development Bank estimates cheaper imports from the U.S. could shave as much as 20% of the Asian giant’s LNG import costs by 2020. Japan’s focus on U.S. shale sends a signal to LNG exporters that Asian countries are no longer willing to pay a premium on natural gas prices.

“Japanese government and industry hope to enhance security of LNG supply in terms of both quantity and price,” said Dr. Ken Koyama, a director at The Institute of Energy Economics in Tokyo, who will be speaking at the Pacific Energy Summit in Vancouver next week. “Thus to procure LNG at more competitive prices is a priority for Japan.”

The Asian natural gas market is currently dominated by long-term contracts indexed to oil prices. This has kept Asian LNG prices much higher than those in other parts of the world, “leading to serious questions about whether such a system is sustainable,” according to an IEA report.

Asia continues to pay between US$14-US$18 per million Btu of LNG, while Europe pays about US$10-US$12 and US$3 in North America.

“There have been calls from many Asian buyers to switch away from the current oil-linked gas pricing mechanism which have resulted in too high gas prices (up to $18/MBtu in Japan),” said Anne-Sophie Corbeau, an analyst at the IEA, who co-authored the report ‘Developing a Natural Gas Trading Hub in Asia.’

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