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[TOKYO] As Qatar grapples with deepening diplomatic isolation, Japanese liquefied natural gas buyers are pushing the world's largest seller for cheaper supplies.
Both Jera Co, one of the biggest LNG purchasers, and Tokyo Gas Co haven't decided if they'll sign new deals with Qatar to replace current contracts that begin expiring in 2021, according to executives from both companies. The buyers are insisting on less-expensive cargoes and greater purchasing flexibility from the Middle East nation, which relies on oil and gas for about half its gross domestic product.
The demands from Japan, its largest LNG customer, may add pressure on Qatar after neighbours including Saudi Arabia severed diplomatic ties and cut travel by land, sea and air. The hard-nosed bargaining tactics aren't related to the diplomatic tensions, but the result of a global LNG glut that's forcing producers to offer concessions, which sellers such as Total SA and Anadarko Petroleum Corp signal may be necessary to lock up customers.
"LNG buyers believe the position of suppliers like Qatar are weakening and they are demanding more contractual flexibility," said Junzo Tamamizu, managing partner at consulting and advisory firm Clavis Energy Partners LLC in Tokyo. "But if the market flips to a shortfall, buyers won't be able to make the same demands."
Qatargas, a division of state-run Qatar Petroleum, didn't respond to a request for comment.
Jera buys about 8 million tons a year of LNG, or 20 per cent of its annual requirement, from Qatar, President Yuji Kakimi said in a June 7 interview in Tokyo. The exporter with the world's third-largest gas deposits is an "important supplier" for the company and can offer deals that meet the needs of buyers since it's one of the lowest-cost producers, he said.
LNG sellers will benefit by allowing buyers more flexibility to resell cargoes because it will make the market more efficient and stimulate demand, Jera Chairman Hendrik Gordenker said in a December interview. Japan's Fair Trade Commission is investigating whether supply contract clauses that restrict resales violate competition laws, Bloomberg News reported in July.
Japan was Qatar's biggest LNG customer last year, importing 12.1 million tons, followed by South Korea and India, according to the International Group of Liquefied Natural Gas Importers.
It may be difficult for Qatar to turn its back on Japanese buyers because they typically have better credit than other customers, according to Mikiko Tate, a senior analyst at Sumitomo Corporation Global Research Co.
Tokyo Gas, which has a 350,000 ton-a-year contract with Qatar that makes up a fraction of its 14 million-ton annual purchases, will review proposals for new agreements when its current contracts get closer to expiration, paying attention to prices and the ability to resell cargoes, Takashi Higo, senior general manager of the company's gas resources department said in an interview.
Qatar warned Japanese buyers that if they push too hard in contract negotiations they could be squeezed out of the country's LNG projects, Reuters reported last month, citing sources it didn't identify. Japanese trading companies Mitsui & Co and Marubeni Corp each own a 7.5 per cent stake in the Qatargas 1 project, while Mitsui has another 1.5 per cent stake in the Qatar 3 project, according to Qatargas's website.
"We are not the ones who own a stake. That's the problem of the trading companies," Jera's Kakimi said. "Our contracts are totally different story."