TOKYO, JAPAN — Major liquefied natural gas (LNG) buyers, including Japan, are urging suppliers for more flexible contracts to accommodate fluctuating power demand, industry executives revealed at an energy conference on Tuesday. As LNG suppliers such as Qatar favor long-term contracts to secure financing for massive projects, buyers are increasingly seeking shorter, more adaptable agreements to resell excess cargo during periods of low demand.
Jonathan Westby, senior vice president of LNG at JERA Global Markets, Japan’s largest LNG buyer, highlighted the growing need for flexibility in contracts during the Asia Gas Markets Conference. “What we are looking for is flexibility in both our long- and short-term contracts in order to manage the uncertainties we face,” Westby said. He explained that JERA’s power demand fluctuates due to weather conditions and the availability of nuclear power, making it essential to buy and sell LNG based on these factors.
Japan’s reliance on LNG has been declining as nuclear power gradually returns to the country’s energy mix, following the shutdown of all reactors after the 2011 Fukushima disaster. Japan now operates 11 nuclear reactors, which contributed to an 8% drop in LNG imports last year—the lowest level in 14 years. Nuclear energy currently accounts for 9% of Japan’s power generation, and more reactors are expected to restart, although the pace of decline in LNG demand remains uncertain.
In China, the world’s top LNG importer, power demand varies dramatically between summer and winter and across different regions, according to Zhang Yaoyu, global head of LNG and new energies at PetroChina International. “Unfortunately, in China, we live in an environment where there are huge supply and demand imbalances,” Zhang said. He emphasized the need for flexibility to manage fluctuating demand across the country’s vast energy grid.
Both JERA and PetroChina stressed the importance of supply diversification in managing these imbalances. The push for flexibility is being echoed by LNG suppliers. Sungbok Park, chief marketing officer at Mexico Pacific, noted that while long-term contracts remain preferred for securing project financing, contract terms are evolving to offer more flexibility for managing volumes. “This flexibility is becoming even more important as market conditions continue to shift,” Park said, although he emphasized that new projects still require long-term commitments of 15 to 20 years to secure financing.
Intermediaries, such as trading houses, are playing a crucial role in bridging the gap between the divergent needs of buyers and producers. Steve Hill, executive vice president at Mercuria, highlighted that producers seek 20-year contracts to develop projects, while buyers face more uncertainty due to variable demand. “The world has more of a need for intermediaries to manage the risk between what producers want and what buyers want,” Hill said, underscoring the evolving dynamics in the global LNG market.
As demand for LNG becomes more unpredictable due to factors like renewable energy growth and nuclear restarts, the call for flexible contract structures is expected to grow, reshaping how LNG is bought and sold in key markets like Japan and China.
