(Corrects paragraph 14 in APRIL 13 story to show Ivory Coast
project is FSRU not FLNG)
* Total signed first short-term LNG deal with Japan's JERA
* Glut, weak prices put buyers in strong position
* Sauquet sees possible oversupply in 2018/2019
* Total looks further downstream to spur gas demand
By Bate Felix
PARIS, April 13 French oil and gas major Total
has signed a short-term liquefied natural gas (LNG)
supply contract with Japan's JERA, signalling its willingness to
offer flexible terms to traditional buyers amid a global glut
and lower prices, the group's President for Gas, Renewable and
Power told Reuters.
JERA, the world's biggest single LNG buyer, will purchase
six cargoes, or about 400,000 tonnes of LNG, four of them priced
on a traditional oil-indexed formula and two others based on
spot market gas prices, according to the deal signed last week.
"We are the first to negotiate a new contract with them. The
current market situation favours this type of creativity,"
Philippe Sauquet told Reuters in an interview, giving details
about the agreement for the first time.
Spot LNG prices in Asia LNG-AS have tumbled from over $20
per million British thermal units (mmBtu) in 2014 to under $6
currently due to oversupply.
This has put buyers, particular power producers in Japan and
South Korea, in a strong position to impose on suppliers and
demand more flexibility because of uncertainty over future
demand, Sauquet said.
Sauquet said for Japanese power producers buying LNG, it is
very difficult to have certainty whether in 10 years or 15
years, nuclear power generation plants will resume production or
not following Fukushima.
JERA is a partnership between of Tokyo Electric Power
and Chubu Electric Power.
While previously, buyers could be locked into 20-year
oil-indexed contracts, Sauquet said Total was now open to
shorter-term contracts with more flexibility and various
indexation to oil and gas.
Sauquet said the deal with JERA was part of Total's strategy
to continue to expand and find new markets that are critical for
the development of major LNG projects still in the pipeline.
"To launch important projects such as Ichthys or Yamal, you
need to secure markets," Sauquet said, adding that although
Total had long-term contracts that have helped secure financing
for the projects, it needed to go further downstream and be more
flexible to get new outlets.
Sauquet said 2017 will see more supplies coming into the
market mainly from the United States, however, the decline in
production in Europe due to mature fields in the North Sea, and
constraints in the Netherlands' Groningen gas field, could
stabilise the market if demand remains robust as in 2016.
"If demand continues to grow in the same rhythm as last
year, then 2017 could be ok, but not a great year. We know that
in 2018-2019 we will not escape oversupply of the market and it
is very likely that for some months we will have low prices."
Sauquet said the trend of LNG demand, however, continues to
be robust with many new countries readying to consume more gas.
He added that for the medium to long-term, Total was confident
that gas demand will continue to grow.
He said Total was helping some of these new countries
develop the downstream gas market by tailoring projects such as
in Ivory Coast where it is heading a consortium to build a
floating storage and re-gasification unit (FSRU) that would cost
about $200 million instead of the $1 billion onshore facility.
"With the low prices, some countries will use more gas for
electricity generation. Gas is becoming more competitive on a
pure economic ground compared with coal and so we have seen a
shift in market share that benefited gas," he said.
However, he said industry would have to be more reasonable
with new projects so as to bring costs down further, producing
gas where it was cheap and not in challenging areas such as deep
"The industry is a bit guilty of having built so much
capacity without having secured markets. Today there is a need
to find customers and it is having a bearish impact prices."
(Reporting by Bate Felix; Editing by GV De Clercq and David