LONDON/MILAN, Jan 28 (Reuters) - Japanese liquefied natural gas (LNG) buyers are having to hone a new skill - selling.
After decades of negotiating with suppliers for the lowest possible prices, the world’s top importer is moving from customer to competitor, seeking to sell surplus stock.
Japan is unlikely to shift vast volumes off its books, but it is delaying or diverting some shipments after overestimating gas needs, adding pressure to a market already facing a global glut.
“These end users that have been conservatively trying to buy LNG at the best possible price, these people now have to morph into sellers and optimisers, which is definitely not in their DNA,” said a trader, estimating Japan may need to resell around one or two cargoes per month.
LNG imports by the world’s top buyer declined 3.9 percent to 85.046 million tonnes last year, the first dip since the Fukushima nuclear disaster drove purchases to successive records, Ministry of Finance data showed.
Utilities have already cut import contracts to minimum levels.
As well as passing on spot cargo purchases, utilities aim to further trim supply as mild weather curbs heating demand while atomic reactor restarts and cheap coal crowd gas from the power mix.
To lighten its burden, Kansai Electric Power Company is looking at swapping out cargoes with firms outside Japan, traders say.
“To cope with fluctuating LNG demand reflecting power demand, we have some flexibility in contracts,” a Kansai spokesman said, declining further comment.
As of Wednesday, about 470 megawatts of LNG-powered Kansai power plants were closed, he added.
“The (Japanese) end users are slightly overbought so they’re all working either independently if they’re the bigger ones, or with trading houses if they’re the smaller ones, to either delay those cargoes or to sell them on the open market,” a trader said.
Spot LNG prices have fallen 26 percent to $5.10 per million British thermal units (mmBtu) since Christmas. That compares with oil-indexed term supply fetching around $8 per mmBtu.
Sources say Japanese utilities can only justify selling surplus supply if it turns a profit.
Once the latest slump in crude oil prices works through into long-term contracts in three to six months time, a window should open for profitable reselling of Japanese cargoes onto spot markets, Anne-Katrin Brevik, director of LNG analytics at Thomson Reuters said.
From July onwards, oil-linked supply will cost from $5.40 per mmBtu to $5.70 per mmBtu in October, according to forecasts, bringing the trade closer to reality.
The return of Japan’s nuclear reactors is likely to slowly reduce the country’s LNG demand. Its third reactor is due to restart as early as this week, after all were taken offline in the aftermath of the Fukushima disaster. (Additional reporting by Osamu Tsukimori in Tokyo, editing by Katharine Houreld)