Asia gas importers gain traction in push for hub pricing

TOKYO, Sept 21 Fri Sep 21, 2012 6:52am EDT

TOKYO, Sept 21 (Reuters) - Asia's energy-hungry nations may be finally making headway in their push to scrap oil-linked natural gas prices as the high cost of the fuel threatens economic growth, especially in Japan, the world's top importer of liquefied natural gas.

Removing the link between gas prices and oil and moving to the so-called hub pricing would drastically cut the cost of importing natural gas, but producer countries like Qatar have long opposed such moves.

LNG is expensive in Asia at about five times the cost of natural gas in the United States where a shale oil and gas boom has driven down prices.

"We are prepared to adjust to revolutionary thoughts. I do think we are hearing this message," Thomas R. Walters, vice-president of Exxon Mobil Corp and head of its gas and power marketing arm, told a conference of LNG producers and consumers this week in Tokyo.

At the conference, the first of its kind in Japan, consumers from Tokyo Gas Co to India's ONGC sounded the clarion call for cheaper fuel.

And producers who have benefited from high LNG prices in Asia -- as Japan hoovered up as much as it could on the spot market -- say they are now listening.

LNG prices in Asia have nearly doubled since March 2011 to a peak of $18 per mmBtu in May this year.

"There will have to be a hub developed in Asia like in the U.S. and Europe," Charif Souki, chairman and chief executive officer of Cheniere Energy Inc, told Reuters.

Under a decades-old system, Japan and South Korea, the two largest LNG importers, tend to buy most of their long-term LNG supplies through long-term contracts, with prices linked to oil.

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The pricing issue has come to a head as Japan has ramped up LNG imports after last year's devastating Fukushima crisis that crippled the country's nuclear power sector.

Japan logged a second straight month of trade deficits in August, partly due to an increase in its energy imports.

Changes to LNG pricing are inevitable, some producers say.

"It's difficult to sustain for a long time the argument that I don't care about my customers," Jean-Marie Dauger, executive vice-president of GDF Suez, told Reuters at the conference. "If we don't adapt then the demand will diminish."

Another catalyst for change could be the development of new markets for LNG in China and India, which are expected to become the second and third largest LNG importers by 2020.

"If you want real volume to increase, it's going to come from these countries -- developing countries and they would definitely need, initially, some kind of breathing space," R.K. Garg, the director of finance at India's Petronet said earlier this month.

Some European utilities, such as Italian energy group Edison and Germany's EON have both got amended terms on long-term deals.

Qatar, the world's biggest LNG producer, has the most to lose from lower prices and has warned that pricing uncertainty and volatility could discourage long-term investment.

But those concerns are being brushed aside in Asia, where countries are racing to build their own hubs with Shanghai and Singapore actively exploring options.

Singapore LNG is likely the most advanced and expected to come online in 2013. Asian LNG Hub Co., which says it plans to identify a site in South Korea this month and start feasibility studies soon after, is aiming for completion by 2018.

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