Japan and India have decided to establish a buyer group for liquefied natural gas (LNG) in order to lower fuel prices.
The Wall Street Journal (WSJ) reported on September 10 that Japan’s Minister of Economy, Trade, and Industry Toshimitsu Motegi and India’s Minister for Petroleum and Natural Gas Veerappa Moily reached an agreement in Tokyo on September 9 to form a multilateral organization of LNG importers.
Japanese and Indian ministers asked other big LNG importers in Asia, including Korea and Singapore, to join the group. They invited Korea to be a member, since it is the second biggest buyer, and the state-run Korea Gas Corporation is the largest single buyer of LNG.
It is the first time that LNG importing countries in Asia have created a group to take action, despite sporadic complaints about prices in the past.
"LNG prices in Asia are significantly higher than those in Europe and North America. Purchase prices should be set at levels where both LNG importers and exporters can agree," the two ministers said in a joint statement.
They also mentioned non-transparency in LNG price-setting. They said that since contract prices between parties involved in business deals are strictly confidential, there are no reliable price standards in Asia that truly reflect supply and demand.
Expensive LNG prices in Asia are attributable to long-term contracts linked to oil prices. A recent drastic decrease in spot prices for natural gas caused by the shale gas boom are not reflected in long-term contracts.
In summer 2013, Asian LNG importers paid as much as US$18 per million British thermal units, six times more than what North American buyers paid. A Japanese government official commented on this issue by saying, "Our import LNG prices are 30 percent higher than those in North America, even after the liquefaction and transport costs are factored in."
A growing use of LNG in import countries has increased their desire for lower prices. Asian countries such as Korea and Japan have increased LNG imports, owing to a greater demand for electricity arising from the hot summer. In particular, Japan, the world's biggest LNG importer, has increased its import volume for two years, after the shutdown of the Fukushima reactor. On the other hand, growing energy imports in India caused by weak currency have led to a rising trade deficit. This vicious circle prompted the country to actively negotiate for lower prices.
However, exporters are vigorously trying to defend current LNG prices. LNG sellers such as Russia and Qatar are seeking countermeasures by creating their own group. In a July forum for gas importers, Russian President Vladimir Putin said that the current system should be maintained so as to stabilize supply and demand. Then, he urged exporting countries to make a concerted effort to fight for the existing system.