Malaysia's Petronas gets flexible on LNG contracts as supply builds

Malaysia's Petronas gets flexible on LNG contracts as supply builds

Malaysia's state energy firm Petronas may try shorter-term LNG contracts and
smaller cargo sizes to entice buyers, senior company officials said, at a
time when it has major contracts coming up for renewal and the market is
awash in supply.

The liquefied natural gas (LNG) marketing drive at Petroliam Nasional
Berhad, or Petronas, coincides with rising production after the start-up of
Train 9 at its Bintulu export terminal and its first floating LNG unit.
Malaysia is the world's third-largest LNG exporter.

The global LNG market has become a buyers' market as growth in new supplies,
mainly from Australia and the United States, exceeded demand and depressed
prices. Asian spot LNG prices have dropped by more than 70 percent since
2014.

"New demand creation is becoming a norm," Ahmad Adly Alias, vice president
of Petronas' LNG Trading & Marketing said at the Asia Oil & Gas Conference
on Tuesday.

"We have recently restructured our organization to put a lot more focus on
Middle East and South Asia... We've also set up a team to cover Southeast
Asia," he said.

The company's upstream chief executive officer Mohd Anuar Taib told Reuters
on Monday that it sees significant potential demand growth in India,
Pakistan, Bangladesh and some parts of Southeast Asia.

In China, Petronas plans to work with a partner to sell smaller parcels to
meet the demand of small buyers, Ahmad said.

Petronas is also exploring LNG sales as a transportation fuel for trucks and
ships, the officials said.

CONTRACT NEGOTIATIONS

Producers, who used to sell their cargoes on long-term contracts, now have
to become more flexible on selling terms, including allowing customers to
swap contracted supplies and sell more cargoes in the spot market.

Petronas will soon start negotiating with customers in Japan, its biggest
buyer, as some contracts are set to expire next year, with some even looking
to reduce the volume of LNG they buy.

Japan's biggest utility Tokyo Electric Power Company has a contract to buy
up to 4.8 million tonnes per year (tpy) of LNG, while Tokyo Gas Co's
contract is for up to 2.6 million tpy. They both expire in March 2018.

"(Our) priority is to recontract in Malaysia but probably volume-wise it
will be changed. And, how we can agree to new terms and conditions with
better flexibility or pricing," said Shigeru Muraki, executive advisor at
Tokyo Gas.

"We will compare with other sources, we will consider the diversification of
supply sources or diversification of pricings."

Petronas' Ahmad said the company was currently working with long-term buyers
to renew the contracts, but did not give details.

In the interview Monday, upstream CEO Anuar said long-term contracts have
"almost become a novelty." Petronas could do both short- and long-term
contracts, he said.

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Link to Original Article:
http://af.reuters.com/article/energyOilNews/idAFL4N1IB2ID

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com