Amid increased tensions between proponents of LNG projects and their buyers, one of Japan's captains of industry says he cannot envisage the oil and gas industry rushing to follow iron ore by axing its traditional long-life pricing mechanism in favour a transparent spot-price regime.
But Inpex president Toshiaki Kitamura, who has the benefit of being both a supplier and buyer of LNG, would not rule out an eventual shift "in the very long run" to an overarching spot price mechanism.
"In Japan or in Asian energy markets we don't at this moment have any transparent pricing for spot so we don't have that basis for making a spot price," he said yesterday on the sidelines of the APPEA conference.
Mr Kitamura - whose com- pany is behind Japan's biggest investment in Australia, the $US34 billion Ichthys project which will be capable of meeting about 7 per cent of Japan's gas imports demand - would not be drawn on whether his view was shared by Japan's utilities which underpin much of the $200 billion in LNG developments in Australia.
But his caution was mirrored by International Gas Union president Jerome Ferrier, who said spot prices for LNG buyers were not the guaranteed panacea to high gas prices.
"People think the spot price drives the long-term market price down," Mr Ferrier said.
"It's important to keep in mind that the spot market is about a market of lower prices, it is the flexibility, in terms of diversifying your supplies and in terms of arbitrage opportunities and in terms of security of supply in times of a crisis."
The price of spot LNG cargoes has traded above $US18 per million British thermal units, compared with a Henry Hub price for domestic gas in the US that remains about $US4/mBtu.
The disparity has been the reason Japan's corporates, which combined buy more LNG than any other country, have been arguing for a pricing shift.
There are sections of the industry that look at what happened with iron ore, though the driver was on the side of suppliers, not buyers.
The move has largely benefited suppliers but continues to frustrate buyers.
A counter argument to the spot price push is that Japan Inc's push for lower prices does not factor in Australia's history of long-term reliable production.