IEA sees Asia paying less for LNG as prices converge

Thu Nov 22, 2012 11:38am IST

Related Topics

Stocks

   

* IEA sees Asia benefiting from signs of delinking from oil

* IEA says oil market well supplied, but glut not expected

By Osamu Tsukimori

TOKYO, Nov 22 (Reuters) - Asia should benefit from the convergence of global liquefied natural gas markets amid signs of change for its pricing structure linked to oil, the head of the West's energy watchdog told Reuters on Thursday.

Gas has historically been pegged to the oil market through long-term contracts, because both fuels used to be produced by the same exporters and were often used in the same industries.

But a rising disconnect between gas and oil suppliers and new two-way contracts between exporters and customers based on regional gas exchanges means gas is more likely to take its cue from specific regional prices rather than global benchmarks, such as oil's Brent crude.

"We can see that the gas market will be converging and also it goes for prices," Maria van der Hoeven, executive director of the International Energy Agency, told Reuters on the sidelines of a news conference, when asked about Asia's efforts to link LNG prices with the U.S. Henry Hub gas benchmark.

Removing the link between gas prices and oil and moving to so-called hub pricing would drastically cut the cost of natural gas imports, but producer countries such as Qatar have long opposed such moves, saying they need oil-indexed prices to finance the huge expense of building LNG projects.

"For Henry Hub prices, you have to take into account the transport costs, the marginal cost and so on, but the price will be definitely lower than you are paying now," Van der Hoeven said.

LNG is expensive in Asia, fed partly by Japan's need for fuel to run power stations after most of its nuclear plants were shut following last year's massive earthquake.

It is nearly four times the cost of natural gas in the United States, where a boom in shale oil and gas has driven down prices.

Van der Hoeven's comments come amid signs that Asia's energy-hungry nations may finally be making headway in their push to scrap oil-linked pricing of natural gas.

Cheniere Energy has struck long-term deals to supply South Korea and India from the Sabine Pass project at Henry Hub-linked prices. Kansai Electric also secured BP's non-U.S. LNG supplies at Henry Hub-linked prices, likely to be the first time for a Japanese firm.

Van der Hoeven was in Tokyo to meet Japanese trade minister Yukio Edano and attend a World Energy Outlook presentation.

OIL MARKET WELL SUPPLIED, GLUT NOT EXPECTED

Separately, Van der Hoeven told a news conference on Thursday that world oil markets were well supplied, despite the loss of around 1 million barrels a day of crude from Iran.

Brent has stayed above $100 a barrel for most of this year, boosted by concerns over supply disruptions after the United States and Europe slapped sanctions on Iran in a bid to force Tehran to abandon its controversial nuclear programme.

"Altogether, when we look at the supply of the market, the market is sufficiently supplied," she said. "But I agree it would be nice if this would be reflected in the lower price."

She added, however, that the market was unlikely to see a glut, where supplies far exceed demand.

"We project that there's such a huge growth in demand for energy, especially in emerging countries, that a real glut will be something that is not to be expected. Let's be honest about that," she said.

A recent spike in tension in the Middle East, following air strikes by Israel on the Gaza strip and Palestinian rocket attacks, has for now had no impact on the IEA's outlook for oil market fundamentals, she said earlier this week.

The IEA advises industrialized nations on energy policy and represents 28 oil importing countries.

FILED UNDER:
Photo

After wave of QE, onus shifts to leaders to boost economy

DAVOS, Switzerland - Central banks have done their best to rescue the world economy by printing money and politicians must now act fast to enact structural reforms and pro-investment policies to boost growth, central bankers said on Saturday.

Barack Obama in India

Reuters Showcase

Coal Mining

Coal Mining

India to open coal to commercial mining firms soon, minister says  Full Article 

RBI Loan Rules

RBI Loan Rules

RBI relaxes overseas loan recast rules   Full Article 

E-commerce Firms

E-commerce Firms

Amazon, e-commerce rivals fuel commercial property boom in India  Full Article 

Growth Forecasts

Growth Forecasts

Indian economic growth forecasts pegged back, despite rate cuts: Reuters Poll.  Full Article 

Uber is Back

Uber is Back

Uber back in Delhi; govt says must await approval.  Full Article 

Markets at Record

Markets at Record

Sensex rises to record after ECB stimulus programme.  Full Article 

Pharma Sector

Pharma Sector

Ipca Labs hit by FDA ban on plant for standard violations.  Full Article | Related Story 

Forex Reserves

Forex Reserves

India FX reserves at record high as RBI fortifies defences  Full Article 

QE for Euro Zone

QE for Euro Zone

ECB launches 1 trillion euro rescue plan to revive euro economy.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage