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ECONOMY > Energy

Editorial: G7 collaboration needed to build LNG market

  • May 4, 2016
  • , Nikkei , p. 2
  • Translation

At the G7 energy ministerial meeting held in Kitakyushu, the seven countries affirmed that they will work together to reform the natural gas market. During the session, Japan announced that it will establish itself as an international hub for liquefied natural gas transactions by the early 2020s.

 

The role of natural gas in the realm of energy supply is significant, as it emits fewer greenhouse gases than coal and petroleum. The enhancement of market transparency and fluidity can help expand transactions and eventually ensure a stable supply of energy. Collaboration within the G7 should deepen in this respect.

 

While there is an international stockpiling mechanism for petroleum, no such system exists for natural gas. A country that imports natural gas via pipelines may suffer from a cut-off in supply in the event of a conflict or natural disaster.

 

LNG can be shipped to remote areas, but many of its contracts have little leeway. It cannot be delivered to ports that are not designated in advance and its surpluses cannot be marketed for resale.

 

That is why it is necessary to review this rigid transaction mechanism and build a market in which prices are set based on supply and demand. The G7 countries should work in tandem to urge LNG producers to review their practices. As the world’s largest LNG consumer, Japan should lead this effort.

 

The U.S. also has an important role to play. It produces LNG from shale gas and began selling it in February. Prices of LNG produced in the U.S. are determined based on supply and demand. Buyers can choose a port of delivery. This example needs to be used in negotiations with other LNG producers.

 

Cooperation with Asian countries is also needed. Japan, China, South Korea, and other Asian countries account for 70% of LNG consumption. Singapore and Shanghai are also looking to establish themselves as LNG hubs. Coordination with these countries will become indispensable if Japan wants to become a hub for LNG transactions.

 

Domestic infrastructure also needs to be developed. The government needs to accelerate efforts to reform the gas market through such efforts as making over 30 LNG ports accessible and allowing surplus LNG to be marketed for resale.

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