LNG buyers look to U.S. to hedge future risk of Hormuz disruption

LNG prices in the spot market for Asia are about US$30 per million Btu as European and Asian buyers compete for a limited pool of supply. Photo by CN-STR/AFP via Getty Images

Article content

Article content

Companies in Thailand, Pakistan and Bangladesh are in talks to sign long-term contracts with U.S. suppliers, officials said at the Gastech conference in Bangkok. China Gas Holdings Ltd. signed a rare sales agreement this week from U.S. exporter Venture Global Inc. scheduled to start in 2030, despite tensions between Washington and Beijing.

Article content

Article content

Article content

The move comes as disruption to Hormuz — through which about a fifth of all LNG flowed before the war — enter a seventh month and Qatar’s massive export terminal remains largely offline after being damaged by missile strikes. The loss of supply from Qatar and the United Arab Emirates to key Asian customers, coupled by high spot prices, is lifting utility bills and triggering energy shortages across parts of Asia.

Article content

Article content

“Buyers around the world really are more focused on diversifying their LNG procurement,” Yukio Kani, the chairman of Jera Co., one of the world’s biggest LNG buyers, said on Bloomberg TV. “Some rely too much on Qatar, like more than 50 per cent or 60 per cent.”

Article content

Jera — Japan’s top gas importer — has spent the last decade diversifying its sources of supply and now depends on the Middle East for about five per cent of its LNG, Kani said at the Gastech conference in Bangkok. It imports most of that through long-term contracts — a strategy that other nations should follow to reduce exposure to the volatile spot market, according to Kani.

Article content

Inpex Corp., the Japanese energy producer, is considering investing in an LNG export project in the U.S., chief executive Takayuki Ueda said in an interview. The flow of LNG through the strait, he said, “will not return to the previous status quo.”

Article content

Article content

“Diversification of our portfolio — in our words, portfolio resiliency — is important,” Ueda said.

Article content

Article content

To be sure, companies are looking beyond the U.S. as well. Inpex is exploring projects in South America, Ueda said. Thai company officials at Gastech, meanwhile, showed interest in LNG from Canada and the Asia Pacific.

Article content

U.S. suppliers tend to offer among the lowest prices for longterm contracts, in part because the agreements are linked to the nation’s Henry Hub benchmark and vast shale reserves have kept domestic prices low. Shipments from the U.S. under long-term contracts are being delivered to Asia at US$8 per million British thermal units, according to officials at U.S. and Japanese companies.

Article content

For comparison, LNG prices in the spot market for Asia are about US$30 per million Btu as European and Asian buyers compete for a limited pool of supply.

Article content

However, the prices of some U.S. contracts have increased, due in part to supply chain bottlenecks and a reaction to the current tightness in the market, according to company officials and traders. That, plus a general shift to reduce exposure to LNG, may act as a hurdle to any fast deals.