Flexibility the byword as LNG industry adapts

The liquefied natural gas industry might see stronger alliances and mutual transactions between purchasers as the market evolves, Inpex chief executive Toshiaki Kitamura said at LNG 18. “A major structural change is taking place within industry. LNG buyers once prioritised long-term stable LNG supplies. [However], with the easing of the market brought on by the increase in supply sources, buyers are more and more inclined to pursue flexibility in the terms of agreement, including contract period, procurement volumes and destinations.”

Kitamura told delegates at LNG 18 that due to uncertainties in demand, customers are looking to take advantage of the flexibility in their contracts to buy and sell volumes among themselves. “To respond to this shift in buyers’ priorities, suppliers must fast improve the competitiveness of their projects through efficient project development and operations,” said Kitamura.

“This will require experience in the execution of a project as operator as well as the proactive use of latest technologies. At the same time, suppliers will not be able to avoid incorporating a certain amount of flexibility into sales and purchase contracts to accommodate the diversifying needs of buyers,” he added.

Kitamura’s touted increased collaboration between LNG buyers was borne out in April by the tie-up between Tokyo Gas and Kansai Electric Power Company (Kepco). The two Japanese utilities have agreed to collaborate on the procurement of LNG from projects including Woodside Petroleum’s Pluto in Australia and Dominion Resources’ Cove Point in the US.

Kepco and Tokyo Gas said they are looking for increased flexibility in procurement in order to ride out the current turmoil in the LNG market. The companies will also form a technical partnership for their LNG-fired power plants.