Japan’s largest LNG buyer has warned that serious action is needed now to address the competitiveness of Australian LNG if it wants long-term LNG trade with Japan.
In a blunt assessment, JERA senior vice president for LNG Hitoshi Nishizawa, told the EXA conference “the clocking is ticking”.
“Inaction could potentially cost Australia thousands of jobs, billions of dollars in lost revenue and weaken regional trade partnerships,” Mr Nishizawa said.
Echoing comments from other major gas players during the conference, he said there were concerns over regulatory requirements, approval delays, and the impact on investor confidence.
“The cost of LNG production affects the decision of all buyers about where to invest in the LNG upstream,” he said.
“Higher labour costs and industrial action have an impact on the cost, as well as the supply stability of Australian LNG.
“Australia faces a number of challenges to remain globally competitive in energy. In addition to policy and regulatory uncertainty, slow approval times for projects
and mixed messaging on support for the gas sector, generally it costs more to invest in Australia and, as a buyer, we are sensitive to the impact of higher labour
costs and industrial action on the cost of Australian LNG.”
He said long-term supply deals negotiated in 2010 were due to expire from 2030.
“In contrast to Australia, in the US there are expectations of abundant future new supply, cheaper prices, lower cost of production and labour, and faster project
approvals for LNG projects,” he said.
“This may very well impact Australian LNG in terms of competition for additional long-term sales of LNG – to JERA and to others – in future round sales campaigns.
“While Australian LNG is expected to continue to make up part of Japan’s long-term energy mix, in the future it may not be the first choice as it has been in the past.
“An important point here, and one that I don’t think is really well understood (is that) deadlines are approaching for long term Australian LNG procurement contracts.
“What many people may not have recognised – including politicians – is that around 2030 and on some SPAs (sale and purchase agreements) and equity
agreements will expire.
“This means that given the duration of around 20 years or so for long-term contracts, that a significant volume of current Australian LNG contracts with Japan,
which started their deliveries in the mid-2010s, are due to end around 2030 onwards.
“It means that some key contracts for Australian LNG will end at around the same time that cheaper, abundant supplies of gas are due to come on to the market.
“Australian LNG will face fierce competition with other global suppliers for future sales.”