Japan's largest power generation company JERA will not renew its long-term LNG contracts totaling 5.5 million mt/year of supply from Qatar that are expiring next month, President Satoshi Onoda said Nov. 25, as it seeks to balance its supply portfolio.
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"Currently we are not considering contracting [with Qatar] because we find it extremely difficult to extend the existing large contracts timing-wise," Onoda told an online press conference.
"As for Qatar, [the contracts] are set to expire at the 25-year contract expiry," Onoda said, explaining that the company's issues with renewing were "due to developments in the global LNG markets, the progress of decarbonization, and the changing position of LNG in Japan because of liberalization of power and gas, among other factors, in the country."
JERA, however, does not plan to give up all of its long-term LNG supply contracts, Onoda said, adding that its decisions would be based on an overall assessment of contractual terms and the situation when contracts come up for renewal.
In the case of the Qatari contracts, "we had no choice but to give it up this time because there was a mismatch in conditions between the Qatari side and what we had requested," Onoda said.
Asked to comment on alternative supply to replace the Qatari supply, he said that JERA had secured enough supply to meet its domestic demand.
JERA still sees Qatar as an "important gas producing country" as the company still has other LNG supply contracts with it, Onoda said, adding that the company is also in talks with the Middle Eastern supplier on other projects including on ammonia and hydrogen.
JERA's decision not to renew its expiring Qatari long-term LNG contracts comes at a time of very high spot LNG prices.
Asian spot LNG prices have sustained at historically high levels of more than $35/MMBtu in recent weeks, prompting LNG importers to reassess their exposure to the spot market in the long term and triggering a wave of new long term deals with LNG producers. The S&P Global Platts JKM for January was assessed at $35.987/MMBtu on Nov. 24 and had briefly surpassed $56/MMBtu in early October.
The shift in market sentiment in favor of long-term contracts has been an opportunity for LNG producers like Qatar, the US, Russia and Australia to sign up new customers to support brownfield expansions and greenfield projects. The high spot LNG prices also come after a long lull when low spot LNG prices and the COVID-19 pandemic had halted activity on the contracting side of the LNG business.
Market participants also expected that a number of long-term contracts between Northeast Asian gas companies and LNG producers that are expiring this decade have a higher chance of being renewed amid declining confidence in the spot market.
S&P Global Platts Analytics expects to see a significant amount of new contracts needed in order to replace the contracts that are expiring by 2030, especially since Asia Pacific as a region will continue to be net short of LNG. In recent years, recontracts have been shorter in duration, for smaller volumes and with more flexible terms.
For JERA, which has one of the largest LNG portfolios in the market, renewal of its long-term contracts with Qatar hinge on several factors including new pricing terms, destination flexibility options, price and regional diversification and the ability of its trading business to optimize volumes. It is likely to take a strategic view independent of elevated market prices.