May 23 2023
Japanese LNG buyers are in no rush to secure spot cargoes despite potential strikes at the 16.9 million mt/year North West Shelf LNG project, one of their key supply sources in Australia, with any near term impact likely to be limited as Japan heads into the lower demand shoulder months season.
Japanese company officials and sources said they had not received notices of any supply impact so far, but continued to closely monitor developments on potential industrial action at offshore platforms for the Woodside Energy-operated NWS LNG project.
Woodside is set for what appears to be final negotiations with the Offshore Alliance labor union grouping on Aug. 23. Failure to reach an agreement would pave the way for industrial actions at its platforms.
The Offshore Alliance has unanimously endorsed the issuance of a seven working-day notice to Woodside if a resolution is not reached by the end of Aug. 23, the alliance said on its Facebook page Aug. 20.
Industrial action could start as early as Sept. 2 at Woodside's North Rankin Complex, Goodwyn Alpha and Angel platforms, which feed gas to NWS LNG, ranging from minor action to full-scale stoppages after providing seven working days' notice.
Limited impact on Japan
For now, NWS cargoes are being loaded as normal according to the annual delivery program, and Japanese buyers have not received any notice of changes to supply plans, industry sources said. Buyers are therefore waiting to see how events unfold.
"We cannot act now based on expectations [when nothing concrete has been decided]," said one Japanese importer.
In any case, the uncertainty over industrial action at NWS platforms comes at a time when Japan's summer demand for power generation is nearing the end of its peak, with city gas utilities in the midst of low-demand season.
"Even if the strike goes ahead at NWS' natural gas and liquefaction facilities leading them to suspend LNG production immediately, Japan would have limited impact on its LNG supply and demand balance unless such outage lasts for a long time," said Takayuki Nogami, chief economist at Japan Organization for Metals and Energy Security, or JOGMEC.
"A chance of seeing significant impact on LNG procurements like many end-users rushing to secure substitute supply sources to NWS is not high," Nogami added.
Spot LNG prices in Asia have risen nearly $3/MMBtu since the start of this month as market participants await clarity on the risks to LNG supply from Australia.
Platts, part of S&P Global Commodity Insights, assessed the October JKM at $14.056/MMBtu Aug. 22, up from $11.174/MMBtu on Aug. 1.
NWS LNG exported around 16.19 million mt of LNG in 2022, and has exported around 10.12 million mt of LNG so far this year, according to S&P Global data.
In 2022, around 42% of NWS's LNG exports were sent to Japan, followed by 32% to China, 13% to South Korea and around 10% to Taiwan.
This year the profile has changed, with China accounting for 36% of its total LNG exports, followed by Japan at 34%, Taiwan at 11% and South Korea at 9.4%. Thailand has emerged as an offtaker from NWS, accounting for 6.3% of its exports so far in 2023, compared to less than 1% in 2022.
Following several contractual expiries in the last few years, Japanese buyers' long-term LNG contracts account for a total of 5.058 million mt/year or 30% of the 16.9 million mt/year NWS production, according to S&P Global calculations based on industry information.
Of the Japanese NWS customer base, city gas utilities' long-term LNG contracts account for 18% of the total NWS output, according to the S&P Global calculations.
NWS is operated through a number of joint ventures, most of which have Woodside as the main operator with a 33% stake, and BP, Chevron, Shell and Japan Australia LNG -- a 50-50 joint venture between Mitsubishi and Mitsui -- holding the remainder split equally, according to company data.
China's CNOOC International holds a 5.3% working interest in one of the North West Shelf upstream joint ventures, but it does not have a stake in the downstream assets. CNOOC International also holds a 25% working interest in the China LNG joint venture (CLNG), established to supply LNG from North West Shelf to the Dapeng LNG Terminal in Guangdong, China.
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