Re­ports yes­ter­day that LNG spot prices in Japan topped US$15 per mil­lion British ther­mal units (mmB­tu) dur­ing the week con­firm the need for the Gov­ern­ment to move swift­ly to put some diplo­mat­ic mus­cle on the bones of a spec­tac­u­lar ar­bi­trage op­por­tu­ni­ty. The re­ports of high­er LNG prices in Japan and South Ko­rea are an in­di­ca­tion that the mar­ket for im­ports of liq­ue­fied nat­ur­al gas-once dom­i­nat­ed by the Unit­ed States and Eu­rope-is like­ly to be dri­ven by Asian de­mand in the fu­ture. While the spot price for Asian LNG jumped to US$15.10 this week, nat­ur­al gas for Sep­tem­ber de­liv­ery on the New York Mer­can­tile Ex­change closed the week's trad­ing at US$3.94 per mil­lion British ther­mal units.

While LNG prices in Japan and South Ko­rea are un­like­ly to stay at such high lev­els for­ev­er, it is cer­tain that in the fu­ture the price of the com­mod­i­ty will be high­er in these two Asian gi­ants than in the US, where nat­ur­al gas prices have de­clined by 11 per cent this year. Japan is the world's largest im­porter of LNG fol­lowed by South Ko­rea and Spain, ac­cord­ing to the 2010 da­ta com­piled by the Web site Pe­tro­le­um In­sights. Last year, im­ports of LNG in­to East Asian coun­tries to­talled 123 mil­lion tonnes, which was 17.5 per cent high­er than in 2009 and 14 per cent high­er than the pre­vi­ous peak in 2008. The LNG im­port da­ta for 2010 in­di­cate that de­mand for the com­mod­i­ty in Japan con­sti­tut­ed 57 per cent of to­tal East Asian de­mand while South Ko­re­an im­ports amount­ed to 26 per cent of the re­gion's to­tal im­ports.

Giv­en the hor­rif­ic earth­quake, tsuna­mi and nu­clear dis­tress the is­land na­tion suf­fered ear­li­er this year, it is clear that Japan will be look­ing to di­ver­si­fy its en­er­gy sup­ply away from its nu­clear op­tions in the fu­ture. Japan's re­al­i­ty presents the T&T Gov­ern­ment, which owns about 10 per cent of At­lantic LNG's Train I, with an op­por­tu­ni­ty to deep­en trad­ing links with the Asian coun­try by ne­go­ti­at­ing an agree­ment that will com­mit at least part of the T&T stake in the LNG pro­duc­tion fa­cil­i­ty, lo­cat­ed in Point Fortin, to the Japan­ese mar­ket at an agreed long-term price. The fact that the mar­ket for LNG has shift­ed east­ward was un­der­lined by Sel­wyn Lash­ley, the Min­istry of En­er­gy's di­rec­tor of LNG and gas ex­ports, in an in­ter­view in the Au­gust Week Three edi­tion of the Busi­ness Guardian.

"Our con­tracts al­low for di­ver­sion of car­goes to ar­eas where we will get a bet­ter price and we have been able to suc­cess­ful­ly do that by send­ing car­goes to Eu­rope where it catch­es a high­er price and to the Far East where the prices are even bet­ter." But Mr Lash­ley was re­fer­ring to the di­ver­sion of car­goes on the spot mar­ket, which is very volatile, af­fect­ed by many fac­tors and is dom­i­nat­ed by the multi­na­tion­al en­er­gy gi­ants with whom T&T part­ners in the LNG ven­ture. What may be re­quired is for T&T to es­tab­lish an in­de­pen­dent, long-term con­trac­tu­al re­la­tion­ship to sup­ply LNG to Japan that is in­de­pen­dent of the LNG part­ners and which will ben­e­fit T&T at least as much as it ben­e­fits the LNG part­ners.

This may re­quire the rene­go­ti­a­tion of con­tracts, but these are con­tracts that have been in place since be­fore 1999 when the first car­go of LNG left these shores. If these con­tracts are no longer in the na­tion­al in­ter­est of this coun­try, they must be re­viewed to en­sure a more ap­pro­pri­ate align­ment. This is a mat­ter that the Gov­ern­ment should move quick­ly on as there are like­ly to be sev­er­al oth­er coun­tries much near­er to Japan than T&T that would like to ne­go­ti­ate sup­ply agree­ments with Japan. We would ex­pect the Na­tion­al Gas Com­pa­ny and the Min­istry of En­er­gy to move with speed and flex­i­bil­i­ty in ex­plor­ing the pos­si­bil­i­ties of an LNG sup­ply agree­ment. We would rec­om­mend the in­volve­ment of the Min­istry of Trade, the Min­istry of For­eign Af­fairs and Com­mu­ni­ca­tion and the At­tor­ney Gen­er­al's of­fice to en­sure that T&T is able to ex­e­cute quick­ly on this idea.