By Henning Gloystein
SINGAPORE (Reuters) - Qatar's isolation by other Arab nations has dealt a strong hand to Japanese utilities in talks reviewing long-term gas contracts with the top LNG exporter, likely accelerating a shift to a more openly traded global market for the fuel.
If Japan gets its way in the periodic contract review, the world's biggest buyer of LNG would have to import more short-notice supplies from producers such as the United States, another step away from rigid deals that run for decades towards a more active spot market.
At stake for Qatar are 7.2 million tonnes of annual liquefied natural gas (LNG) sold in contracts that expire in 2021. The $2.8 billion a year in gas mostly goes to Japan's JERA, a joint venture between Tokyo Electric and Chubu Electric that is the world's single biggest LNG buyer.
"Since the crisis emerged, the Japanese are sure not to renew all contracts and they will push very hard to get more flexible terms," said an advisor on LNG contracts, speaking on condition of anonymity due to the sensitivity of ongoing negotiations.
Qatar and Japan as seller and buyer will each account for nearly a third of 300 million tonnes to be shipped this year in 500 tankers. Any change in how volumes trade between them is sure to jolt an industry where practices in place since the 1970s are already being challenged.
In some ways the situation is similar to what happened in Europe between 2008 and 2014, when amid an economic crisis and tensions between Europe and Russia, European utilities renegotiated gas purchase terms, freeing up more supplies for spot markets.
Three deals between Japan and Qatar are under a periodic review, three sources with knowledge of the matter said, potentially allowing for some adjustments, and the buyers may also only partially renew the contracts when they expire.
An official with a Japanese buyer would not comment on individual contracts, but said purchase agreements were typically reviewed every five years.
That fits with the deals under discussion, which will expire in 2021 and were signed in 1997/1998 and in 2012.
Qatar Petroleum was not available for comment.
TABLES TURN
LNG volumes grew to 260 million tonnes last year from 250 million tonnes in 2015, produced by around a dozen countries, with more than half coming from Qatar, Australia and Malaysia.
Thirty-nine countries imported LNG in 2016, up by four from the previous year, with 70 percent of world consumption in Asia.
Facing competition from new producers, Qatar talked tough with Japan ahead of the contract reviews, warning buyers not to demand too many changes, or Japanese companies could be squeezed out of their stakes in Qatar's LNG projects.
But the tables have turned since Arab nations including Saudi Arabia, Egypt, and the United Arab Emirates (UAE) cut ties with Doha, boycotting its trade and weakening Qatar's negotiating position.
Cheniere, the only U.S. company to export LNG so far, is offering its supplies as an alternative.
"This dispute is a timely reminder of the value of the diversity and flexibility of supply that destination–free U.S. exports bring to individual buyers," said Cheniere spokesman Eben Burnham-Snyder.
Unlike other exporters, Cheniere allows its buyers to re-sell cargoes.
The Qatar crisis "will further encourage international LNG buyers to include more American LNG ... for reliability reasons," said Kent Bayazitoglu, director of market analytics at Gelber & Associates in Houston.
MORE TRADE: SURVEY
This all comes as a growing number of producers and importers are joined by more commodity houses that trade LNG.
Supplies are outpacing demand, leaving a lot of LNG stranded without takers and pulling down Asian LNG spot prices by over 70 percent since 2014 to below $6 per million British thermal units.
Trying to bring their LNG to the market, producers including Australia's Woodside Petroleum and Royal Dutch Shell (LON:RDSa) have said they will grant greater contract flexibility.
Spot LNG trading made up 18 percent of supplies in 2016, up from 15 percent a year before, according to the International Group of Liquefied Natural Gas Importers.
In an informal Reuters survey, a majority of more than 30 industry experts expected at least 25 percent of Asian LNG volumes to be traded in the spot market by the end of next year. And if Japan wins concessions from Qatar, this share could rise faster, traders said.
Preparing for this, trading houses are beefing up their LNG presence.
Top commodities traders Vitol and Glencore (LON:GLEN) have both said this year that they expect more spot trading over the next 18-24 months.
Vitol says its physical LNG trading volumes will rise from 3 million tonnes in 2016 to 4.5 million tonnes this year.
Japanese trading houses, eyeing the changes being driven by the country's utilities, are also preparing for more spot trade.
"We are going to reinforce our LNG team at our energy trading unit in Singapore as LNG spot trading is on the rise," Hiroyuki Kato, executive vice president of Mitsui & Co Ltd said last week.