IEEJ： October 2014ｃ○ IEEJ 2014

Special Bulletin

A Japanese Perspective on the International Energy Landscape (186)September 12, 2014

2nd Meeting of Multilateral Joint Study Group on LNG
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn September 9, the Second meeting of Multilateral Joint Study Group on LNG took place at
the Institute of Energy Economics, Japan. The establishment of the Group was announced at thesecond LNG Producer-Consumer Conference held in September last year. The latest Study Group
meeting followed the first one at our institute in February this year.

The global LNG market continued expanding. Particularly, the Asian market for this clean
energy source is expected to continue to expand substantially. But Asian LNG prices are higher than
European and American prices, representing the problem of the “Asian premium”. Industrial,
government and academic sectors as well as media and consumers have growingly been interested inchallenges for the LNG market to be developed further and play greater roles in the world including
Asia. Under the circumstances, the study meeting attended by the representatives from relevant
countries' research institutes discussed challenges for the further sound development of LNG market,with an aim to submit a report to the third LNG Producer-Consumer Conference scheduled forNovember 6 this year.

Participating in the study meeting were experts from the International Energy Agency andresearch institutes in eight countries -- Australia, India, Singapore, Taiwan, Thailand, the United
Kingdom, the United States and Japan. Including observers from other major countries, nearly 30
participants had frank and active discussions. In this report, I will not explain the results orachievements of the meeting, as they are planned to be reported to the third LNG
Producer-Consumer Conference. Instead, I would like to give my personal comments and impressive
points on the study meeting as one of the participants.

First, I would like to point to the presence of various uncertainties about the future LNG
market. I personally expect that the supply-demand balance in the Asian LNG market will ease as
expanding U.S. LNG exports and new Australian LNG projects indicate sufficient supply to fully
satisfy growing Asian demand until around 2020. Even after 2020, I foresee (excessively) sufficientsupply potential in view of new LNG projects in Canada, Russia and eastern Africa. But many
participants in the study meeting pointed out that there might be very great uncertainties regarding
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both supply and demand.

This means that there are factors that could accelerate and decelerate growth in supply anddemand. Among factors cited as contributing to accelerate demand growth in the meeting were anaccelerated switch from coal to natural gas under tougher measures against air pollution and anatural gas demand expansion due to unexpectedly sluggish nuclear power generation. Those viewed
as holding down demand growth included economic growth deceleration in major countries, smooth
progress in Japan's restart of nuclear power plants and LNG prices remaining at high levels.

On the supply side, there are great potential LNG project candidates in addition to massive
LNG development projects that are expected to be implemented as noted above. But someparticipants in the study meeting noted that there might be various factors for revising supply growth
downward, including output drops for existing (mature) LNG projects, unexpected interruptions toLNG supply as seen recently, higher project costs, and the potential postponement or cancellation ofplanned projects amid uncertainties about demand.

Another matter of concern to the participants was the presence of geopolitical risks that could
influence the world natural gas/LNG market, including the Ukraine situation and its impact on
Russian and Eurasian gas markets, and the destabilizing Middle East situation.

Anyway, the key point is that we should seriously consider how to further develop the LNG
market amid the uncertainties and what governments and relevant companies in LNG supplying andconsuming countries should do to allow LNG to play its expected great roles.

In 2013, international natural gas trade totaled 1,035.9 billion cubic meters (BCM) of which
LNG accounted for only some 30% or 325.3 BCM.. LNG trade, though having continued expanding,is still small in the entire international natural gas market or the entire international energy market.
But from a different angle, it can be expected to expand further. At the same time, LNG accounts forlarge shares of gas supply in Japan, South Korea and Taiwan. LNG is now significant for Asia as
China and India have grown into large LNG importers with Thailand and Singapore having become
LNG consumers over recent years. The LNG market's sound development is an Asian problem and akey Asian challenge.

Another impressive point to me regarding the study conference is that the sound developmentof the LNG market and its functions is expected to contribute to the Three E's -- energy security,environment protection and economic efficiency -- in Asia. All stakeholders in relevant countries
may have to bring together their wisdom to consider how to remove impediments to and constraints
on the sound development of the LNG market and its functions, not necessarily being captured by
the existing concepts.
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Contact: report@tky.ieej.or.jp
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