The news comes just as vice president and general manager of BG Group’s Japan office Katsumi Kuroda revealed how Toyo Gas’ equity stake in Queensland Curtis LNG was part of its wider strategy to diversify its supply, as Japan weighed up competing options from North America, Russia and East Africa.
Also yesterday, Japanese regional utility Hokuriku Electric Power Company said it signed its first agreement to buy 380,000 tonnes a year from Malaysia.
Japanese LNG imports hit a record for a fifth year in a row last year at 88.51MMt, taking about a third of global LNG shipments.
QCLNG has global LNG sales agreements for almost 10MMtpa with Tokyo Gas, China National Offshore Oil Corporation, GNL Chile, Chubu Electric and the Energy Market Authority of Singapore.
Tokyo Gas signed a 20-year sales agreement in 2011 for supply of 1.2 million tonnes and took a 1.25% equity position in some of BG’s tenements in the Walloons Fairway of Queensland’s Surat Basin, and a 2.5% stake in the liquefaction of Train 2 in QCLNG.
Tokyo Gas had, however, been scouting other competitors as part of its supply diversity strategy.
Tokyo Gas’ executive officer and senior general manager Kunio Nohata told Gastech in Singapore in March last year that Japan’s decision on whether to buy LNG from Russia, North American or East Africa would depend on “who offered the most competitive rates”
Fitch now believes that the global LNG market may become oversupplied over the next five years as new LNG capacity comes to market. Global LNG capacity, considering existing and under-construction projects, is anticipated to reach approximately 420 million metric tons per annum by 2020, equivalent to over 1.8 times the 2013 LNG demand.
In an LNG oversupply scenario, Fitch anticipates that the prospects for new US LNG capacity would weaken as other established LNG centres – like Qatar and Australia – could price at operating costs.
“The US LNG fixed take-or-pay payments, opportunity cost of Henry Hub (HH) natural gas domestically, and distance from LNG demand centres could become economic handicaps for US LNG projects,” Fitch said.
“Reduced US contracting and final investment decision momentum, including BG Energy Holdings' decision to delay FID on Lake Charles LNG until 2016, suggests that off-takers are re-evaluating and searching for improved visibility on the longer term economics.”
While Fitch expects oil-linked LNG prices to provide US projects with favourable Asian export prospects, the possible delinking of Asian LNG and oil prices could increase the economic dependence of US LNG on low HH prices to stay competitive.
Fitch expects that given its strong economic incentive, Asian counterparties will seek more competitive LNG prices.
“The possible LNG supply/demand imbalance, in conjunction with Asia's large import market position, rising mix of ‘non-long-term’ LNG trade, and estimated LNG contract expiration profile may provide Asian LNG importers with more pricing leverage,” Fitch said.
“Recent Brent oil and HH pricing of about $65-$70/barrel and $2.50-$2.75/million British thermal units, respectively, creates a very attractive oil-linked Asian export opportunity for US LNG based on the results in Fitch's indicative margin sensitivity analysis.
“However, recent lower spot prices for Asian and European LNG deliveries provide near break-even margins. This difference in LNG economics occurs despite HH prices being at historic lows and illustrates the pricing support provided by oil-linkage.”
Fitch believes that additions to new US LNG capacity will slow considerably over the medium term.
“New US LNG capacity is expected to be mainly comprised of the under-construction and, possibly, later-stage development projects and train expansions,” the agency said.
It also expects brownfield projects to remain favoured due to their capital cost and, to the extent regasification terminals are made available, operational flexibility advantages.
While this should lead to a crowding out of greenfield projects, Fitch said greenfield projects may improve their prospects by reducing capital costs and/or, more likely, accepting lower returns.
Kuroda said this week that BG currently sells more LNG to Japan than anywhere else, with April 2 marking a major milestone when one of its “most important Japanese customers”, Tokyo Gas, received its first cargo from QCLNG under the aforementioned 20-year sales and purchase agreement.
The cargo was delivered by specialist LNG vessel the Maran Gas Delphi to Sodegaura LNG receiving terminal in Japan.
“Over the years our business relationship with Tokyo Gas has strengthened and evolved into a partnership,” Kuroda said.
BG supplied its first spot cargo in March 2006, followed by two mid-term contracts starting in 2007 and 2010 respectively.
QCLNG is the world’s first LNG plant to liquefy CSG, and is comparatively near to Japan, the world’s largest importer of LNG.
“Tokyo Gas has been striving to diversify its gas supply sources so that they can stay competitive and manage changing demand,” Kuroda, who worked at Mitsubishi Corporation for 33 years before joining BG, said.
“Their participation in QCLNG through taking an equity position as well as the purchase commitment from the facility are two pillars that help support this strategy.
“The development of our relationship with Tokyo Gas reflects the evolution from customer to partner and what can be achieved by understanding each other’s needs. I look forward to seeing many more cargoes arrive at Sodegaura terminal in the years ahead.”
Kuroda’s role at Mitsubishi ranged from general manager of its Global Gas Unit in Tokyo to senior VP of its Energy Business in London.
