* Asia buyers' club looks to be on hold after cancelled Feb
* LNG prices to remain high if no structural change to
* KOGAS want to cut spot supply purchases in favour of term
By Meeyoung Cho and Jane Chung
SEOUL, April 4 Asian gas and power companies are
starting to pair up for joint purchases of LNG after more
ambitious efforts to form a regional group to win lower prices
and less rigid contracts have stalled.
Japan, India, South Korea and other Asian gas importers -
who take about 70 percent of global liquefied natural gas (LNG)
exports - have been trying to form a buyers' club to use their
dominant market presence to delink contract prices from oil and
allow importing companies to resell any excess cargoes.
But after two meetings to discuss a regional buyers' group
last year, a third was cancelled in February and no others have
been scheduled. The issue was also not on the official agenda
last week at a gas industry conference in South Korea.
Tired of a lack of progress on the government-led
initiative, a number of firms - including Japanese power
companies and state gas utilities in India and South Korea - are
looking at other ways to buy LNG collectively, with the gain of
any advantage becoming more critical as import costs soar.
Asia's rising demand for LNG pushed spot prices to
near-record levels above $20 per million British thermal units
LNG-AS in February, while the gas import bill in top importer
Japan rose nearly a fifth last year.
"As long as there is no structural change to the supply of
LNG or gas into the Asian market, prices will remain high,"
Hirobumi Kawano, the head of state-run Japan Oil, Gas and Metals
National Corp (JOGMEC), told Reuters last week at a conference
in South Korea.
LNG has traditionally been sold in Asia under long-term
contracts linked to benchmark oil prices, giving buyers supply
security and producers of the fuel a guaranteed return on
And while co-buying is unlikely to give companies a break on
prices, it would improve flexibility by allowing them to shift
cargoes between two or more delivery points, executives say.
With no broader grouping, there may be few other ways for
Asian LNG buyers to win any leeway in their contracts.
Participants at the industry meeting in South Korea last
week said that just how cool Asian governments had gone on the
buyers' club idea could be measured by the fact that few
Japanese companies were represented by senior management at the
conference, apart from Chubu Electric Power.
"Japan is not that far away. So if you can't even get
Japanese buyers to a major conference, what chance does the
Asian buyers' club see in this regard?" asked Noel Tomnay, head
analyst of global gas research at Wood Mackenzie.
Japan's LNG imports in 2013 hit a record 87.5 million tonnes
at a highest-ever cost of $69 billion, up 17.5 percent from the
JOINT AGREEMENTS, IMPORT COSTS
Chubu Electric and Indian state gas utility GAIL
last week signed a deal to consider cooperation in joint
procurement of LNG; and the head of state-run Korea Gas Corp
(KOGAS), Jang Seok-hyo, said his company has also
agreed with Japanese companies to co-purchase when volumes are
Otherwise commitments from companies remain few. Tokyo
Electric Power Co's proposal to domestic and foreign
firms to jointly procure up to 40 million tonnes of LNG a year,
for instance, has drawn little interest.
Import costs, industry leaders said at the meeting, are not
likely to drop until projects in Australia and U.S. shale gas
exports bring a new wave of LNG toward the end of the decade.
Asian gas prices, which cover chilling and shipping costs,
are at least three times prices in the United States, where the
shale boom has reduced what consumers pay for piped gas.
Importing countries have also proposed creating a regional
trading hub to mirror the market structure in the United States
and Europe and allowing for more spot and short-term trading.
But the idea has been slow to develop, with a lack of
infrastructure such as pipelines and storage terminals, as well
as the absence of harmonized regulatory rules in the region.
"The hubs in (the United States and Europe) took 20 years to
develop. There's no reason to think that things will be any
different here," said Chris Holmes, senior director for Global
Gas & LNG at IHS Global.
Despite all the talk of creating a trading hub and
increasing market liquidity, rapidly rising demand from China
and South America is prompting some traditional buyers in Japan,
South Korea and Taiwan to return to the reliability and security
of long-term contracts.
KOGAS, the world's largest corporate buyer of LNG, currently
buys 20 percent of its gas in the spot market or under
short-term contracts, but says it wants to reduce that
proportion to 5 percent to lower price and supply volatility.
"Spot gas prices have on average cost 10 percent more than
long-term supply," said Jang, the company's chief executive.
"I think it is better to reduce the spot and short-term
procurement to secure the supply."
(Writing by Jacob Gronholt-Pedersen; Editing by Tom Hogue)