Reports yesterday that LNG spot prices in Japan topped US$15 per million British thermal units (mmBtu) during the week confirm the need for the Government to move swiftly to put some diplomatic muscle on the bones of a spectacular arbitrage opportunity. The reports of higher LNG prices in Japan and South Korea are an indication that the market for imports of liquefied natural gas-once dominated by the United States and Europe-is likely to be driven by Asian demand in the future. While the spot price for Asian LNG jumped to US$15.10 this week, natural gas for September delivery on the New York Mercantile Exchange closed the week's trading at US$3.94 per million British thermal units.
While LNG prices in Japan and South Korea are unlikely to stay at such high levels forever, it is certain that in the future the price of the commodity will be higher in these two Asian giants than in the US, where natural gas prices have declined by 11 per cent this year. Japan is the world's largest importer of LNG followed by South Korea and Spain, according to the 2010 data compiled by the Web site Petroleum Insights. Last year, imports of LNG into East Asian countries totalled 123 million tonnes, which was 17.5 per cent higher than in 2009 and 14 per cent higher than the previous peak in 2008. The LNG import data for 2010 indicate that demand for the commodity in Japan constituted 57 per cent of total East Asian demand while South Korean imports amounted to 26 per cent of the region's total imports.
Given the horrific earthquake, tsunami and nuclear distress the island nation suffered earlier this year, it is clear that Japan will be looking to diversify its energy supply away from its nuclear options in the future. Japan's reality presents the T&T Government, which owns about 10 per cent of Atlantic LNG's Train I, with an opportunity to deepen trading links with the Asian country by negotiating an agreement that will commit at least part of the T&T stake in the LNG production facility, located in Point Fortin, to the Japanese market at an agreed long-term price. The fact that the market for LNG has shifted eastward was underlined by Selwyn Lashley, the Ministry of Energy's director of LNG and gas exports, in an interview in the August Week Three edition of the Business Guardian.
"Our contracts allow for diversion of cargoes to areas where we will get a better price and we have been able to successfully do that by sending cargoes to Europe where it catches a higher price and to the Far East where the prices are even better." But Mr Lashley was referring to the diversion of cargoes on the spot market, which is very volatile, affected by many factors and is dominated by the multinational energy giants with whom T&T partners in the LNG venture. What may be required is for T&T to establish an independent, long-term contractual relationship to supply LNG to Japan that is independent of the LNG partners and which will benefit T&T at least as much as it benefits the LNG partners.
This may require the renegotiation of contracts, but these are contracts that have been in place since before 1999 when the first cargo of LNG left these shores. If these contracts are no longer in the national interest of this country, they must be reviewed to ensure a more appropriate alignment. This is a matter that the Government should move quickly on as there are likely to be several other countries much nearer to Japan than T&T that would like to negotiate supply agreements with Japan. We would expect the National Gas Company and the Ministry of Energy to move with speed and flexibility in exploring the possibilities of an LNG supply agreement. We would recommend the involvement of the Ministry of Trade, the Ministry of Foreign Affairs and Communication and the Attorney General's office to ensure that T&T is able to execute quickly on this idea.