Australia's biggest gas buyer JERA warns of lean times ahead

Japanese gas giant JERA will demand cheaper Australian LNG when contracts expire next decade to match "fierce competition" from new projects in Qatar and the US.

JERA senior vice president for liquefied natural gas (LNG) Hitoshi Nishizawa said Qatar was already expanding its production and the United States under President Trump was expected to follow.

Nishizawa said that, in contrast to Australia, the US had abundant supplies of gas for export, lower costs, and faster approval times, meaning the fuel could be cheaper.

Nishizawa was speaking at the WA government-sponsored Energy Exchange oil and gas conference in Perth on Tuesday.

"Some key contracts for Australian LNG will end around the same time the cheaper supplies of gas are due to come to the market," he said

"So Australian LNG faces fierce competition with other global supplies."

In addition to lower prices, Nishizawa wants more flexible terms in JERA's Australian contracts, including the right to take delivery in Australia (free on board) and no restrictions on where the gas is sent.

This destination flexibility would support the trend for Japanese gas buyers to become traders.

In Japan's 2023 fiscal year, the country resold 37 percent of the LNG it bought, up from 16 percent five years ago.

JERA sources fuel and generates power for the electricity utilities serving Tokyo and Chubu in Japan. It handles about 35 million tonnes of LNG a year, making it one of the market's biggest players.

About 40 per cent of its LNG comes from Australia where it has equity in all the offshore LNG projects except the North West Shelf and Prelude (see list below).

The first Australian LNG contract JERA will be able to renegotiate is with fellow Japanese company INPEX for supply from 2033. The next major contract to feel a push for lower prices from JERA would be with Chevron's Wheatstone from 2037.

INPEX seeks Australia’s help to blow the Paris Agreement

The Japanese energy giant is cherry-picking data to justify its gas growth plans.

Boiling ColdPeter Milne

Nishizawa's prediction of a more competitive LNG market came a week after Shell - one of the world's biggest producers - forecast demand for LNG would jump 60 per cent by 2040.

However, the gas giant's optimism was labelled a contradiction, as the low prices needed to achieve a greater market share for LNG would not support the massive capital investment required to produce and liquify the gas.

Nishizawa also repeated the standard gas industry positions, calling for less regulation, faster approvals, and government support for carbon capture and storage.

He said it was "no secret that Japanese confidence in Australia was shaken by the retrospective application of the safeguard mechanism" to gas projects.

JERA bought 12.5 per cent of Santos' carbon-intensive Barossa LNG project in December 2021.

The transaction occurred five months before the current Federal Labor government was elected with a platform that included cutting emissions in line with Australia's Paris Agreement commitments.

For Japanese confidence to be shaken, its companies must have assumed Australia would never comply with an international agreement.

JERA's Australian LNG interests
(mtpa - million tonnes per annum)

INPEX's 8.9 mtpa Ichthys LNG project
owns less than one percent
from 2018 buys 1.54 mtpa for 15 years

Chevron's 8.9 mtpa Wheatstone LNG project
owns 8 per cent (with Mitsubishi and Nippon Yusen)
from 2017 buys 5.2 mtpa for up to 20 years

Chevron's 15.6 mtpa Gorgon LNG project
owns less than one per cent
from 2016 buys 1.44 mtpa for 25 years

Santos' 3.4 mtpa Barossa LNG project
owns 12.5 per cent
from late 2025, will receive 0.4 mtpa from its equity share

Woodside's 8 mtpa Scarborough LNG project
owns 15 per cent
from 2026 will receive 1.2 mtpa from its equity share and 0.5 mtpa from a 10-year contract with Woodside

reference