Financial Times
Crucial pricing shift for Japan's LNG

Wednesday, December 19, 2012

Japan's liquefied natural gas industry, the world's largest, is starting to move away from using crude oil-linked contracts and is instead partially pricing agreements to US gas quotes - a critical step towards the creation of a truly global natural gas market.

Until now, the global natural gas market has been largely split into isolated regional hubs, with prices at different levels and little trade in between. The shift in Japan comes as many of the country's existing LNG contracts, which date from the 1970s and 1980s, are set to expire over the next decade, providing importers with a rare opportunity to renegotiate the terms of the supply agreements.

The move away from oil-linked contracts is already well under way in the European gas market, where German utilities in particular have demanded more flexible prices and contract terms from Gazprom, the Russian gas producer. Javier Diaz, analyst at gas consultants Bentek Energy, said: "Asia can learn lessons from Europe."

Gazprom has been forced to de-link its prices from the oil market, lowering costs for Germany's Eon and RWE, Italy's Eni, France's Gaz de France and Poland.

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