India, Japan propose joint procurement of LNG

India and Japan are planning to jointly procure liquefied natural gas (LNG) as the two countries bid to curb increasing coal consumption and move towards cleaner fuels.

The move is prompted by the increasing needs of economic expansion amidst nuclear plant shut-downs in Japan and South Korea and the smog from coal-burning factories chocking cities in China, India and elsewhere.

Modalities of the joint procurement will be worked out in three months, India's oil secretary Vivek Rae said on Wednesday.

Demand for LNG is rising in Asia, already the top destination for the fuel, and joint procurement could help ease demand pressure on prices.

While demand for LNG is rising across the region, fresh sources of supply are not likely until at least the end of the decade when US shale gas supplies are expected to begin.

At present, Japan is burning more coal as it is forced to lower the cost of replacing nuclear energy with imported of liquefied natural gas (LNG).

Japan, which is under pressure to improve industry competitiveness, has discarded greenhouse emission curbs and its utilities are burning record amounts of thermal coal.

Japan's 10 main utilities, making up half of the nation's coal use, consumed nearly 16 per cent more coal in the first 10 months compared with a year ago and imported nearly 11 per cent more. Consumption rose 26 per cent in October alone.

Further increases in coal imports would help jack up global coal prices, which are down nearly 9 per cent in 2013 as demand growth weakened in top consumer China.

On the other hand, lower LNG offtake by Japan, which used to account for about a third of world shipments, will help keep global prices capped despite robust demand from South Korea and China.

Japanese imports in the two years since March 2011 had been the prime driver in the doubling of Asian spot benchmark prices of LNG to $19 per mmbtu.