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India, Japan eye joint tenders for cheaper LNG

Liquefied natural gas (LNG) storage tanks and a membrane-type tanker are seen at Tokyo Electric Power Co.'s Futtsu Thermal Power Station in Futtsu, east of Tokyo February 20, 2013. REUTERS/Issei Kato

By Nidhi Verma

NEW DELHI (Reuters) - India and Japan are stepping up the pressure for cheaper liquefied natural gas (LNG) with potential joint tenders as two of the world's biggest gas buyers try to ease the pain of high prices and rising demand.

Asia is already the top destination for LNG supplies and economic expansion, nuclear plant shutdowns in Japan and South Korea and the shift toward cleaner-burning gas in smog-choked Chinese cities are boosting demand even higher.

But that demand has helped push LNG prices to near record levels and now buyers such as India and Japan are trying to find ways to cut their soaring gas import bills.

India and Japan signed an agreement in September to study joint procurement of supplies and now the two countries will hold meetings to work out the details of joint purchases.

"It is a very serious move, which means when you float a tender, maybe Japan and India could combine and can float a joint tender and see what price comes," said India's oil secretary Vivek Rae.

"Details are being worked out, this was agreed to at the ministerial level. They (Japan) have designated some Japanese corporation to work on their behalf, we will designate GAIL," Rae said, referring to India's biggest gas pipeline operator.

GAIL Chairman B.C. Tripathi said his company would meet with a Japanese counterpart next month. Ways to achieve joint procurement should be worked out in three months, he added.

The identity of the Japanese company was not disclosed.

From tomorrow, Asian buyers from countries that import 70 percent of the world's LNG, including not just India and Japan but also China, South Korea and Taiwan, are expected to meet here as they also try to get a better deal from suppliers.

These meetings may herald the early stages of an Asian buyers' club for natural gas in super cooled form transported on ships. Such a group could counter the Gas Exporting Countries Forum, a loose group of 13 gas-producing nations, including Algeria, Iran, Nigeria, Oman, Qatar and Russia.

LNG buyers are trying to push suppliers to delink gas prices from oil and free up contracts that prevent customers from re-selling cargoes because of destination restrictions.

But sellers so far are not budging, with oil majors such as Chevron Corp (CVX) and Exxon Mobil Corp (XOM.N) insisting that multi-year supply contracts in their current form are necessary to ensure they can take on the risk of developing projects that take years to build and cost billions of dollars.

Asian prices are now more than four times the cost of natural gas in the United States, where a boom in shale oil and gas has sharply reduced prices.

If Asian buyers cannot get a better deal on LNG prices, they could switch increasingly to coal, industry observers say. Japan is burning so much coal that LNG imports could dip in 2013 for the first time in four years.

(Reporting by Nidhi Verma; Writing by Jo Winterbottom; Editing by Anupama Dwivedi and Louise Heavens)