Japan, EU jointly lower LNG procurement price

Japan and the European Union (EU) will work together to boost their bargaining power and bring down liquefied natural gas (LNG) procurement prices, major Japanese business daily reported Tuesday. The Japanese government and the European Commission will establish a joint study group on June 7, with an eye toward drawing up recommendations for creating an LNG market that reflects supply and demand, the Nikkei Shimbun said. Japan accounts for nearly 40 percent of global LNG imports, while Europe takes in roughly 20 percent. Market prices of LNG have fallen since the US transformed itself from a natural gas importer to a producer, thanks to the development of shale gas production technology, the newspaper said. Japan is paying 50 percent or so above the benchmark domestic US price plus shipping because Japan's procurement prices for LNG from Russia, the Middle East and elsewhere are linked to oil prices, according to the report. The EU is also procuring most of its LNG at oil-linked prices, and by teaming up with Japan, the EU aims to put more pressure on LNG suppliers to accept its demands. Following approval by the US government, Japan will be able to import LNG at market prices starting in 2017, a move that is seen lifting Japan's bargaining position over other LNG exporters. The joint study group is expected to report the result of its research at a meeting of the LNG Producer-Consumer Conference to be held in Japan in September, the newspaper said. As most nuclear reactors remain idle, Japan now generates 90 percent of its electricity at fossil-fuel power plants, half of which use LNG. The recent weakening of the Japanese currency has sharply pushed up yen-denominated LNG import prices, giving more urgency to Japan's efforts to change the pricing mechanism. The EU is looking to boost the use of LNG in power generation to reduce its reliance on coal and to meet its carbon dioxide emissions reduction target.