Hundreds of delegates from countries representing 90% of the global LNG trade returned to Tokyo this year to hash out the debate started years ago by the discovery of new North American and African gas supplies -- whether to move away from oil-linked contracts.
While Tuesday's discussions were essentially similar to last year's at the 1st LNG Producer-Consumer conference in Tokyo, Japan's Ministry of Economy, Trade and Industry maintained buyers and sellers were inching closer to making firm commitments this year.
Representing the traditionalists at the 2nd LNG Producer-Consumer conference in Tokyo this week was Mohammad Bin Saleh al-Sada, the oil minister of Qatar -- the world's biggest LNG producer.
Responding to growing pressure from Asian LNG term buyers to reflect low global gas prices in their buy contracts -- preferably the US Henry Hub gas prices -- al-Sada said: "LNG producers will find it difficult to take a price list that is associated with remote market indexes, which affects fundamentals and policies that have no relevance whatsoever for the Asian market."
India's energy minister was on the other end, calling for industry standard oil-indexed contracts to be "shunned."
"The transition away from oil price indexation is a necessary precondition for a competitive [LNG] market to evolve in the Asia Pacific region," M. Veerappa Moily told the Tokyo conference.
On Monday, Moily and his Japanese counterpart Toshimitsu Motegi agreed to set up a regional multilateral group of LNG buyers to push for lower prices.
Their initiative may receive some boost from new North American players at the conference who seemed keen to abandon traditional pricing models. COMPETITION AMONG US SUPPLIERS SHIFTS DEBATE
Several owners and operators of terminals built on the US Gulf to import LNG, who as a result of the shale gas boom now want to export gas, want to move away from oil-linked prices in their contracts.
Perhaps the biggest rebel is Michael Smith, CEO of Freeport LNG, if only because he discusses prices -- once a taboo in the LNG world.
His proposed plant, on Quintana Island in Texas, is relatively close to Henry Hub and already has permits from the US Department of Energy to export LNG from the first two trains to countries without free-trade agreements with the US.
On Monday, Freeport announced two 20-year tolling agreements to supply Japan's Toshiba and South Korea's SK with LNG from a proposed third train. The project also has deals in place with Osaka Gas, Chubu Electric and BP.
Smith said Freeport LNG would be able to deliver gas to Asia at premiums of $7/MMBtu over Henry Hub prices, making the delivered price considerably lower than the $16-$18/MMBtu Japanese buyers now pay.
Motegi, Japan's energy minister, put the current delivered price of LNG in the country at $16.30/MMBtu, which he said US supplies could slash by 30%.
"Companies that can get Henry Hub-linked supply have a great advantage over [those] being stuck with oil-linked LNG," Smith said in an interview.
But until the Panama Canal widening is completed next year, shipping costs will be a significant part of any deal signed by Asian buyers with terminals on the US Gulf Coast, such as Freeport, Cheniere's Sabine Pass in Louisiana and Lake Charles proposed by BG Group and Southern Union. The three projects have received non-FTA approval from DOE.
But projects in Alaska and along the west coast of Oregon and British Columbia may have the upper hand on shipping costs even after the widening of the Panama Canal, as the canal could bring in new tolls on tankers.
Peter Hansen, CEO of Oregon LNG, underlined this advantage, estimating shipping costs to Tokyo at $1.50/MMBtu, about $2-3/MMBtu less than from the Gulf of Mexico.
Moreover, the project plans to use economically stranded Canadian gas, which is priced off the Alberta AECO benchmark, currently trading at a discount to Henry Hub.
"The Canadians can produce huge quantities of gas, and yet there is really little market for it," Hansen said.
Because of this, Hansen met with Japanese companies before the Tokyo conference, seeking equity partners interested in entering the Canadian upstream to supply the planned terminal with gas.
There is no shortage of upstream players in Alaska, but the state's Natural Resources Commissioner Dan Sullivan returned to Tokyo to assure the Japanese government and potential customers that the long-discussed North Slope pipeline and LNG export project are still moving along. Moreover, with indigenous peoples' issues resolved, he said Alaska has some advantages over Canada's British Columbia, where First Nation opposition to more oil and gas development has yet to be addressed.
US REGULATORY DELAYS, AFRICA'S POTENTIAL
Several speakers noted that the slow pace of US export approvals could mean much less US LNG on the market in future than some buyers hoped for or expected.
Freeport's Smith is getting impatient, as the terminal waits for final construction approval from the US Federal Energy Regulatory Commission.
"FERC is moving very slowly on every single LNG terminal [project], and that's the gating issue holding Freeport back," he said. "We have the customers, we have the money, we have the engineering done, we're ready to go."
The delays, and political pressure in the US against more gas exports, could mean the impact of US LNG on world markets has been overestimated.
"The US will not be capable to bridge the demand-supply gap [on its own]," said Chevron's gas CEO Joe Geagea.
In East Africa, huge new offshore gas finds have led to plans for big export projects, notably in Mozambique. Anadarko, a big stakeholder in the Mozambique discoveries, appeared open to new pricing mechanisms.
"We want to provide a competitive price when it [the gas] lands, wherever it lands, and there is any number of different ways that pricing formulas can work for that to happen," said Anadarko CEO Al Walker.
Australia, which led the charge a few years ago to supply Asia with new LNG, was sparsely represented in Tokyo, likely because of last weekend's general election.
On Tuesday, a key stage for yet another new eastern Australian LNG export scheme -- Arrow's $14 billion Curtis Island project -- was approved by the Queensland government.
"While Arrow still has some work to do ... it certainly reinforces Curtis Island and Gladstone as the Pacific LNG hub," said Jeff Seeney, Queensland's deputy premier.
Arrow, which is 50% owned by Shell and 50% by PetroChina, has been struggling to secure enough gas for the proposed plant.
While to some the second annual LNG Producer-Consumer conference seemed very similar to the first, with buyers and sellers mostly reiterating their positions,
METI's Shinichi Kihara argued that much had changed between LNG buyers and sellers despite the focus on the Tokyo conference sounding so similar to last year.
Kihara, director of the energy agency's international affairs division, pointed out the Freeport-Toshiba contract, Kansai's Henry Hub-linked purchase agreement with BP in November and the joint procurement deal agreed by Japan's Chubu Electric and South Korea's Kogas with Italy's ENI in January as examples of the changing interactions.
"All these things are happening ... the people are the same, but the tone of the discussion is different," he said.
