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Reuters
SEOUL/TOKYO/MILAN
The world's biggest liquefied natural gas (LNG) buyers, all in Asia, are clubbing together to secure more flexible supply contracts in a move which shifts power to importers from producers as oversupply grows.
Korea Gas Corp (KOGAS) said on Thursday it had signed a memorandum of understanding in mid-March with Japan's JERA and China National Offshore Oil Corp (CNOOC) to exchange information and"cooperate in the joint procurement of LNG."
Together, the three companies purchase a third of global LNG production, giving them a strong hand to challenge restrictive contract terms that have squeezed buyers'finances.
Influential buyers'clubs are largely unheard of in commodity markets where it is the producers, such as the Organisation of Petroleum Exporting Countries (OPEC), who wield power, enforcing production quotas to manage prices.
A painful period of high LNG prices before 2014 left Asian importers scrambling to contain losses and led to the first talks between India, Japan, South Korea, China and Taiwan about joint purchases.
Several joint LNG-buying deals have been set up since then but none approach the scale of the latest agreement, which is the first involving the game's biggest players.
Under Thursday's agreement, the buyers aim to extract concessions from producers that would give them supply flexibility, such as having the right to re-sell imports to third parties, something they are not allowed to do currently under so-called destination restrictions.
"We have created a platform to share, discuss and solve our common issues such as traditional LNG business practices, including destination restrictions,"said JERA spokesman Atsuo Sawaki.
The alliance of three big buyers across three countries will put pressure on exporters such as Qatar, Australia and Malaysia. They prefer to have clients locked into fixed supply contracts which run for decades and make buyers take fixed amounts of monthly volumes irrespective of demand, with no right to re-sell surplus supplies to other end-users.
The agreement has been helped by the fact the power wielded by OPEC is unparalleled in the commodities world. Attempts to create an OPEC-style body through the Gas Exporting Countries Forum has failed to gain traction because gas and LNG markets are more fragmented than oil, while similar moves in coffee, railroads, rubber and tin have all collapsed over the decades.
A senior Qatar Petroleum official hinted that buyers - emboldened by temporarily oversupplied markets to demand better terms - may come to regret their actions when the cycle turns.
"Right now the market is over-supplied but if we went into a period of a tighter market, how would these buyers organisations hold up? That is an important question," the official said.
"If there is a market crunch and gas tightens it could recreate incentives for buyers to lock in long-term contracts."
