Monday, December 4, 2017

Asian LNG market to remain with oil-linked pricing index



Published By Myrna M. Velasco

Lisbon, Portugal – The pricing index for liquefied natural gas (LNG) in the Asian market, that may also cover the widely anticipated gas industry reset in the Philippines, will remain oil-indexed until year 2030, according to the region’s major industry players.
As noted by Hiroki Sato, senior executive vice president and chief fuel transactions officer of Japanese firm JERA Co., Inc. at the World LNG Summit here, “after 2020 or 2030, it (oil indexation for gas markets) might still be mainstream in the Asian market.”
Amid the flourishing Henry Hub index in the global gas market that some Asian LNG players have also shifted to, he noted that oil indexation in the region has remained high at roughly 80 percent to date.
“Even if it will decrease to 50 percent, that would still be a big market,” he said, emphasizing that the pricing shift for most in the Asian gas market may move at considerably slow pace.
Presently, he stressed that “there are some contradictions – pros and cons presented – but the goal is to eventually introduce an Asian or Japan index…or several kinds of indices might be a suitable situation.”
Sato expounded that the Asian market had grown comfortable with oil-linked gas because they deem such to be a “transparent” pricing system, hence, moving away from that practice will take a lot of preparation and ‘soul searching’ for gas players in the Asian market.
Kunio Nohata, executive director of Tokyo Gas Co. Ltd., indicated that “apart from indexation, we want to have Asian market hub pricing… at the end of the day, we will have our market price, but it will take time. Gradually, very gradually, it will change.”
In gas sale and purchase contracts, it was similarly noted that Japan is the only market in Asia that adheres currently to a “review clause,” with most in the region still not getting into that contracting paradigm.
Tokyo Gas is among the Japanese companies long hinted by the Philippine government having that interest to invest in the planned LNG facilities to satiate the country’s gas needs post-Malampaya.
It is worth noting that the Malampaya gas feeding into more than 3,000 megawatts of power capacity in the Philippines had also been oil-indexed, specifically to a basket of crudes, as stipulated in the gas sale and purchase agreements (GSPAs) with power plant off-takers (gas buyers).
In the regulatory framework that was penned by the Philippine Department of Energy (DOE), gas pricing has not been particularized apart from indicating that it shall follow “market” movements.

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