IEEJ: October 2012 All Right Reserved
Special Bulletin
A Japanese Perspective on the International Energy Landscape (103)September 20, 2012

Significance of the First-ever LNG Producer Consumer Conference
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn September 19, liquefied natural gas producing and consuming countries held a meetingin Tokyo. Japan, the world's largest LNG consumer, took the initiative in hosting the first evermeeting between LNG producers and consumers, “LNG Producer Consumer Conference”. Morethan 600 people participated in the gathering, including energy ministers as speakers from major
LNG producing/exporting and consuming/importing countries and top executives as panelists frominternational oil/gas majors, state-run companies in gas producing countries and Japanese
LNG-related companies.
Energy ministers from Japan, Qatar, Australia, South Korea and Canada and others gave
six keynote speeches at the meeting, followed by presentations and question-and-answer discussions
among 26 panelists in four sessions. Session 1 dealt with LNG supply/demand outlooks, Session 2with Asian and other LNG market trends, Session 3 with new gas supply chain frontiers, and Session
4 with LNG financing and technology. The conference thus covered a wide range of key topics. I had
the opportunity to make a presentation as one of the Session 2 panelists. I here would like to discuss
key points that impressed me through the LNG Producer Consumer Conference.
First, I strongly felt that the speakers and panelists, despite the differences in standpoints
between LNG producers and consumers, are commonly expecting and predicting LNG to expand its
role in the world’s energy portfolio. While specific long-term demand forecasts are various, theyshare a feeling that LNG demand in the world, particularly in Asia, will likely increase over a longterm of 10 to more than 20 years. Forecasted paces and degrees of future LNG market expansion
differ, depending on economic growth projections and how the challenges for and constraints on themarket expansion are assessed. But great expectations are placed on LNG as a highly realistic energy
option backed by its cleanness, abundant resources and great supply potential.
Second, meeting participants, while placing great expectations on LNG, emphasized some
important challenges that must be overcome for the further expansion and sound development of theLNG market. One of the major challenges cited at the meeting is whether LNG can strengthen its
price competitiveness. This topic was discussed mainly at Session 2. Particularly, discussions
focused on LNG’s price competitiveness in the Asian market where LNG demand is expected togrow conspicuously. Given that Asian LNG prices have been higher than European and American
prices, LNG’s price competitiveness has become a great matter of concern particularly to Japan thathas increased its dependence on LNG since the March 2011 Fukushima nuclear plant accident. AsianLNG consuming countries are conscious of the facts that lower LNG prices would contribute moreto LNG demand expansion and market development and that maintenance of the present high prices
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would impede future LNG demand growth. One meeting participant noted that more competitive
LNG prices would lead to a further LNG market expansion that would increase sales channels forLNG suppliers and be significant for them. Also subject to discussions at the meeting was theproblem of pricing mechanisms as a structural factor behind the wide LNG price gaps between Asiaand the Europe/America market. Discussions touched on the rationality and adequateness of thepresent basic Asian LNG pricing method linked to crude oil prices and how new LNG pricing
methods should be designed to reflect gas supply/demand conditions.
But the problem is complicated. On the reverse side of Asian LNG consuming countries’
awareness of the pricing problem is LNG suppliers’ concern about demand and investment security.
Overall costs for LNG projects covering upstream development operations and the construction ofnatural gas liquefaction plants and LNG carriers have recently been increasing, despite suchcost-cutting factors as technological advancement and larger economy of scale in LNG project,according to some participants in the meeting. From the viewpoint of securing investment cost
recovery and appropriate profit and rate of return, the rising costs are expected by some to affectfuture LNG project launches, depending on business environment changes in the future.
Toward resolving the challenges, Sessions 3 and 4 discussed new gas supply chain
frontiers, the importance of financing for LNG projects and the roles of new technologies forfloating LNG equipment, LNG carriers and LNG plants. Another topic of discussion was thesignificance of LNG buyers’ participation in the upstream stage of the LNG value chain to take somedevelopment risks.
Discussions at the meeting did not necessarily lead to any concrete solutions to thechallenges being specified or agreed on. Since these challenges are complicated problems in the realbusiness world and have major bearings on business interests, solutions to them may not be easy tofind immediately.
The major purposes of a meeting between energy producing and consuming countries withdifferent standpoints and interests are to produce clear mutual understanding on their different
standpoints through frank discussions on significant problems for both sides and to build on such
understanding to promote serious talks toward solutions benefitting both sides. In this sense, the firstmeeting of LNG producers and consumers achieved the first milestone for the future development ofsuch talks.
Efforts have continued for talks between oil producing and consuming countries toovercome the conflict of interest, as seen in the 1970s, between the Organization of Petroleum
Exporting Countries as a major club of oil producers and the International Energy Agency as a majororganization of oil consumers. Such efforts were further enahnced with the first International Energy
Forum in 1991. Since then, experiences and achievements at such talks have been accumulated in
the oil market over a long time. The history of these talks exceeding two decades has not necessarily
been smooth. Over recent years, however, oil producers and consumers have regularly exchanged
views on short to long-term oil market outlooks and considered differences between their outlooks atthe technical level. They have thus continued talks to promote mutual understanding and to help
stabilize the oil market.
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The newly-started talks between LNG producing and consuming countries are significant
as great expectations are placed on the development of the LNG market. The greater the importanceof LNG issue is, more serious the conflict of interest between relevant parties can be. But LNG
producing and consuming countries are required to continue serious talks with a view to both sides
benefitting eventually from the further expansion and sound development of the LNG market.
Contact: report@tky.ieej.or.jp
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