* Buying LNG at fixed prices is a "gamble" -JERA
* Flat $8/mmBtu could be expensive in 2023 -Diamond Gas
* Tellurian's Souki says has seen strong response to offer
* Australia's Woodside also considering flat price offers
By Aaron Sheldrick and Osamu Tsukimori
CHIBA, Japan, April 6 Japanese buyers of
liquefied natural gas have shown cautious interest in Tellurian
Inc's bold guarantee of U.S. LNG delivered at a fixed
price from 2023, wary of locking themselves into a price that
may eventually work to their disadvantage.
Tellurian Chairman Charif Souki - who pioneered the first
U.S. LNG exports ex-Alaska as head of Cheniere Energy -
stirred things up at the Gastech conference in Japan from the
start, offering cargoes delivered to Japan at a flat $8 per
million British thermal units (mmBtu).
That goes against four decades of selling LNG and building
liquefaction plants worth billions of dollars on the basis of
long-term, fixed-volume contracts linked to the price of oil.
Souki's move looked to be in keeping with LNG importers
pushing for lower prices and better terms, yet even some of the
most aggressive buyers seemed taken aback by the flat rate.
"Fixed prices are a gamble," JERA Co's chief fuel
transactions office Hiroki Sato told Reuters in an interview at
the conference when asked about Souki's offer.
"If you hear now that you can buy LNG for Japan at $8 in
2023, everybody would probably say it's cheap. But ... actions
based on predictions rarely work out. That is how it works in
the world," he said.
'NOT BUYING AT $8'
Tokyo-based JERA Co, a partnership of Tokyo Electric Power
and Chubu Electric Power, is the world's
biggest buyer of the fuel. Last month it joined with Korea Gas
Corp and China National Offshore Oil Corp
to form a club to force producers to drop so-called
Despite Sato's wariness, Souki "is a genius (for) throwing a
stone in the pond and creating a ripple. I don't know how I
evaluate that or if it is good or bad," he said.
During supply shortfalls - such as when the Fukushima
nuclear crisis of 2011 led to the shutdown of Japan's reactors
and imports of LNG and coal spiked to records to replace lost
power generation - prices can run up rapidly.
Spot LNG prices in Asia LNG-AS were at more than $20/mmBtu
in February 2014, for instance, but with the more recent surplus
they are now trading at less than $6/mmBtu.
Buyers might decide that $8/mmBtu looked cheap if oil prices
were at $80 or $100, said Ryosuke Tsugaru, chief executive of
Diamond Gas International, a subsidiary of Mitsubishi Corp
, said on the sidelines of the conference.
"But oil by nature is volatile. And if a fixed $8 turned out
to be expensive, I don't know what they would do," Tsugaru said.
"I am not buying at $8," he said.
DRUM ROLL, PLEASE
Souki made his offer on Tuesday to deliver LNG to Japan at
$8/mmBtu from 2023 under five-year contracts, including
shipping. The offer covers an initial 7 million tonnes a year of
LNG from Tellurian's planned Driftwood project in Louisiana.
"I think we will be sold out by the end of the year," he
later said, as two Taiko drummers banged away at Tellurian's
stand in the conference hall in Chiba near Tokyo, drawing a
crowd of gas executives and onlookers who snapped pictures while
drinking wine and champagne.
Souki told Reuters he had received a strong response from
buyers in Japan, which takes about a third of global LNG output.
He declined to identify any companies that had shown interest.
Australia's Woodside Petroleum is also considering
sales of some of its LNG on a fixed-price basis, Chief Executive
Officer Peter Coleman told reporters at a Gastech press
briefing, although he mentioned no specific level.
"We can get to Japan for eight bucks, so it is fine with
me," said Elizabeth Spomer, executive vice president at Veresen
Inc and head of its planned Jordan Cove LNG project,
when asked about the Tellurian offer.
The Jordan Cove terminal will be built in Oregon on the
Pacific Coast of U.S. so is closer to Japan. Driftwood supplies
from the U.S. Gulf Coast would need to come through the expanded
Panama Canal or make an even longer journey.
"Charif is always provocative and it will be interesting to
see what they do," Spomer said.
(Reporting by Aaron Sheldrick and Osamu Tsukimori; Additional
reporting by Mark Tay; Editing by Tom Hogue)