Japan LNG buyers talk tough

TOKYO/SINGAPORE, Aug 07 (Reuters): An inexorable decline in spot market prices for liquefied natural gas (LNG) is pushing utilities in Japan to be more aggressive in price reviews built into traditional long-term contracts linked to oil prices, lawyers and analysts said.

The utilities are also looking to buy more LNG on the spot market, where prices LNG-AS are plumbing three-year lows and are around half the average contract import price for buyers in Japan, the world's biggest importer of the fuel for power generation and industrial use.

The tougher stance marks a shift for Japanese utilities, which have long favored stability of supply over price, partly because they have been able to pass on costs to consumers.

But liberalization in Japan's energy markets means the old guard utilities are losing customers to new entrants and they are desperate to cut costs.

"Given the gas and power markets liberalisation and intensifying domestic competition in Japan, it is very important for Japanese utilities to achieve competitive LNG prices so price review negotiations are becoming more intense," said Thanasis Kofinakos, head of gas and LNG consulting, Asia Pacific, at Wood Mackenzie.

According to reports, including one from Bloomberg, Japan's second-biggest city-gas company, Osaka Gas, is in arbitration with Exxon Mobil Corp's PNG LNG project in Papua New Guinea after failing to get a reduction in prices during a price review.