* Japanese utilities bypass spot market
* Spot prices steady at $10-11 mmBtu
(Adds trader quote on spot deals, apargraphs 7-8)
By Rebekah Kebede
PERTH, March 16 Asia's spot liquefied natural
gas (LNG) market has dried up this week as producers earmarked
extra cargoes for Japanese utilities, rather than put them up
for spot sale.
About a fifth of Japanese nuclear power plant capacity, or
9,702 megawatts, was shut after a massive earthquake last week,
which analysts have predicted will mean a surge in Japan's LNG
demand. [ID:nL3E7EE025] [ID:nL3E7EF1CF]
But utilities in Japan, the world's largest importer of
LNG, have been in talks directly with suppliers, by-passing
traders and brokers in the spot market, to maximise their
long-term contracts and land swap deals in an effort to stave
off spot price hikes, traders and analysts said.
"Once you start talking to traders, they'll start pushing
the prices up... (looking in the spot market) is the last thing
they will do," Tony Regan, an analyst at Tri-Zen Capital said.
Spot LNG prices rose to $10-11 per million British thermal
units (mmBtu) this week, up from under $10 per mmBtu before the
quake, a modest rise which market watchers said might not
accurately reflect increases in demand from Japan as utilities
are dealing directly with producers. [ID:nN14180773]
Japan's biggest LNG suppliers:r.reuters.com/mep58r
Japan quake impact on energy: [ID:nL3E7EE2EU]
Japan's unfolding disaster: r.reuters.com/mak58r
Qatar's Rasgas said on Monday it was in talks with Qatargas
to offer more gas to Japan and Russia have each pledged some
LNG to help fill the supply gap, with South Korea agreed to
swap cargoes for March and April. Taiwan is also said to have
agreed to cargo swaps with Japan. [ID:nLDE72D0TC]
One source said that Australian producers had taken some
cargoes earmarked for future spot sales off the market to
instead send to Japan.
"The deals are done at a very high level so there are no
traders' negotiations or offers," one European LNG trader said.
"No one really knows what the price is. These deals are with
long term suppliers and sometimes from government to
government," he added.
Companies have also entered the fray, with Royal Dutch
Shell (RDSa.L) saying it had agreed to ship a first cargo to
"Supply has been earmarked... I wouldn't expect,
particularly given the shipping and production capacity that
Qatar has, that Japan would have a shortage of LNG," one
Singapore-based trader said.
On Wednesday, TEPCO said it was gathering information on
two possibilities for procuring its required energy. "We are
seeing two possibilities -- boost the amount of purchases now
from long-term contracts and buy in the spot market," a TEPCO
spokesperson said. The spokesperson said there were some
contracts concluded since the quake on Friday, but would not
BOOSTING LONG-TERM CONTRACTS
Japanese utilities typically have long-term LNG supply
contracts with some degree of flexibility built in for
minimising and maximising offtake.
With the nuclear crisis underway, Japanese utilities are
negotiating to boost their offtake from long-term contracts and
producers are largely trying to meet their needs, traders and
"Everybody is trying to step up to help them in a dire
situation," said Di Brookman, an analyst at CLSA in Sydney,
adding that suppliers were making an effort to cap prices.
"Nobody's trying to make money on this... the amount of
gaming that is going on is quite low," she said.
But the spot market may come to reassert itself soon.
"There will be a time when a lot of inventory is dealt with
and the buyers have less capacity to swap, and that's when the
spot market will come back to the fore again," Brookman said.
GIVING FACE TO THE BIGGEST BUYER
The current generosity of the LNG producers is not without
a payoff -- as part of an expanding market, LNG producers are
also invested in showing that they can handle any additional
"The whole industry has got to demonstrate that it can
handle this well and that they are not overstretched," Regan
from Tri-Zen Capital added.
Supplying Japan with LNG in the short-term may benefit
producers, especially if they value a long-term customer, which
imported 70 million tonnes of LNG in 2010.
"Japan is the biggest buyer and you should always be polite
to your biggest buyer," Regan said.
(Additional reporting by Chikako Mogi and Edward McAllister in
New York; Editing by Ramthan Hussain)