By Oleg Vukmanovic and Sarah McFarlane
ROME (Reuters) - Global oversupply and sliding prices are pushing big natural gas buyers of LNG from India to China to look at reworking long-term agreements in what was for long a producer-controlled market.
Banking on a tide of new liquefied natural gas (LNG) supply from the United States, Australia and Russia hitting markets through 2021, importers are seizing the chance to wring concessions from existing producers wary of losing market share.
Top exporter Qatar, traditionally averse to granting concessions, rolled over in a major contract dispute with India's Petronet last month is likely to trigger a sweep of reviews, as buyers rush to exploit the precedent, say industry sources.
"A year to 18 months ago, sellers could get what they wanted. But now they will do whatever they can within reason to keep those customers," said one LNG industry source, speaking on condition of anonymity.
A taste of what could come was seen in 2010-2014 when Russian gas producer Gazprom gave its European pipeline clients, smarting from steep import bills, deep discounts to avert arbitrations and repair ties.
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This time, global LNG buyers will be seeking changes to the way long-term contracts are structured in the $120 billion annual trade, such as loosening restrictions on cargo diversions and reducing imports below agreed floors. Pricing disputes may take a backseat.
"I think you will see shorter tenures for contracts, 25 years is a long time. You've also got some countries like Japan that traditionally were very much focused on long-term contracts who are more comfortable with spot markets than they were before," said Jason Feer, head of business intelligence at Poten & Partners.
Caught out by sinking demand, other buyers likely looking to sweeten deals include Gail India, Chinese state-run energy giants CNOOC and Sinopec and Korea Gas Corp, sources say.
A Korea Gas Corp official said the company is closely watching the development of markets where demand is weak.
Japanese importers are playing hard ball with Chevron's giant new Gorgon LNG project in Australia, while a string of 10-year Qatari deals with Japan will likely be allowed to expire in the early 2020s, sources have said.
"The BG Group-Shell LNG supply contracts with China are the elephant in the room," an industry source said, referring to Chinese authorities' moves to extract concessions from the two companies in return for approving their $70 billion merger.
CHINESE BUYERS
China's Sinopec, facing up to slowing domestic demand, may be the most high-profile example of a buyer rowing back from supply commitments.
On the hook for 7.5 million tonne/year of LNG from ConocoPhillip's AP LNG project in Australia, starting up this year, Sinopec is looking at reselling large volumes on the open market, straining ties with Conoco.
A Sinopec spokesman said the firm is considering both long- and short-term market possibilities.
Peer CNOOC, which declined comment, has already begun selling a handful of excess Australian cargoes while also taking sharply less high-cost Qatari LNG than in 2014, stirring talk that CNOOC-Qatar deals are now under review.
"For the (Chinese) national oil companies (NOCs), reselling internationally at a loss is politically problematic as the government would prefer they sold domestically at a loss," said Michal Meidan, director at consultancy China Matters.
"So the best option for the NOCs at this point is to try to renegotiate contracts and make them more flexible, or cheaper," she said.
With auditors going through their books amid a corruption crackdown, Chinese energy firms may not look at contract sanctity in the same way as foreign players, especially if aggressive tactics help them avoid run-ins with regulators, Meidan said.
"The oversupply and contract renegotiations will lead to more spot trade. There is a lot of LNG to dispose of and for the next few years at least, the spot market will be critical to clearing the physical markets," Poten's Feer said.
(Additional reporting by Aizhu Chen in Beijing, Meeyoung Cho in Seoul and Nidhi Verma in New Delhi, Editing by William Hardy)