Malaysia's Petronas gets flexible on LNG contracts as supply builds

KUALA LUMPUR (Reuters) -- Malaysia's state energy firm Petronas may try shorter-term LNG contracts and smaller cargo sizes to entice buyers, senior company officials said, at a time when it has major contracts coming up for renewal and the market is awash in supply.

The LNG marketing drive at Petroliam Nasional Berhad, or Petronas, coincides with rising production after the start-up of Train 9 at its Bintulu export terminal and its first floating LNG unit. Malaysia is the world's third-largest LNG exporter.

The global LNG market has become a buyers' market as growth in new supplies, mainly from Australia and the United States, exceeded demand and depressed prices. Asian spot LNG prices have dropped by more than 70% since 2014.

"New demand creation is becoming a norm," Ahmad Adly Alias, vice president of Petronas' LNG Trading & Marketing said at the Asia Oil & Gas Conference on Tuesday.

"We have recently restructured our organization to put a lot more focus on Middle East and South Asia... We've also set up a team to cover Southeast Asia," he said.

The company's upstream chief executive officer Mohd Anuar Taib told Reuters on Monday that it sees significant potential demand growth in India, Pakistan, Bangladesh and some parts of Southeast Asia.

In China, Petronas plans to work with a partner to sell smaller parcels to meet the demand of small buyers, Ahmad said.

Petronas is also exploring LNG sales as a transportation fuel for trucks and ships, the officials said.

CONTRACT NEGOTIATIONS

Producers, who used to sell their cargoes on long-term contracts, now have to become more flexible on selling terms, including allowing customers to swap contracted supplies and sell more cargoes in the spot market.

Petronas will soon start negotiating with customers in Japan, its biggest buyer, as some contracts are set to expire next year, with some even looking to reduce the volume of LNG they buy.

Japan's biggest utility Tokyo Electric Power Company has a contract to buy up to 4.8 MMtpy of LNG, while Tokyo Gas Co's contract is for up to 2.6 MMtpy. They both expire in March 2018.

"(Our) priority is to recontract in Malaysia but probably volume-wise it will be changed. And, how we can agree to new terms and conditions with better flexibility or pricing," said Shigeru Muraki, executive advisor at Tokyo Gas.

"We will compare with other sources, we will consider the diversification of supply sources or diversification of pricings."

Petronas' Ahmad said the company was currently working with long-term buyers to renew the contracts, but did not give details.

In the interview Monday, upstream CEO Anuar said long-term contracts have "almost become a novelty." Petronas could do both short- and long-term contracts, he said.

Reporting by A. Ananthalakshmi, Florence Tan & Emily Chow; Editing by Christian Schmollinger

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