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India, Japan Cargo Swapping Pact to Have Historic Bearing on Global Gas Trade

© AP Photo / Koji Sasahara, FileLNG tanker. File photo
LNG tanker. File photo - Sputnik International
The coming together of the world's largest and fourth largest LNG importer signals a rippling effect on global LNG trade as India, Japan are against the "destination clause" which restricts the sale of imported LNG.

NEW DELHI (Sputnik) — Such collaboration is also expected to exert pressure on suppliers to maintain responsible pricing.

The Indian Council of ministers has given its seal of approval to a contract between India and Japan that would enable the swapping of LNG cargoes between the two countries. The arrangement would be part of a broader bilateral pact to create a gas exchange that could reduce India's logistical costs for natural gas imports. The pact is also aimed at bringing about the abolition of the "destination clause" in the global LNG trade which restricts where gas imported from a particular source can be sold.

Japan has a similar agreement with Qatar and the EU, which will benefit India further in negotiating LNG prices with other nations. Expert say this agreement may lead to significant bursts of LNG supply in the market which would, in the end, create pressure on pricing. Japan is the world's largest LNG importer, and India the fourth largest.

"This will open up the opportunity for technical and knowledge base sharing with Japan in LNG. Currently, India has an agreement with Australia for natural gas, while Japan has one with Qatar. Through this agreement, we can explore options such as swapping cargoes from these sources," Dharmendra Pradhan, India's Minister of Petroleum & Natural Gas said.

Indian youth use the internet at a cyber cafe in Allahabad, India (File) - Sputnik International
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In June this year, the Japan Fair Trade Commission had ruled LNG destination clause as "anti-competitive". A month later in July, Japan had signed a similar agreement with the EU wherein both agreed to phase out territorial restriction for resale. Indo-Japan Memorandum of Cooperation on LNG also provides a similar framework for cooperation in facilitating flexibility in LNG contracts, the abolition of destination clause and cooperation in establishing reliable spot price indices reflecting true LNG demand and supply.

"With India and Japan, the two major importers, coming closer on all matters pertaining to LNG imports, there are bound to be some ripples in international LNG trade and business. More competitive prices, more balanced long-term contracts will be on the radar for both India and Japan", Narendra Taneja, a leading energy expert said.

The agreement comes against the backdrop of India's sustained pressure on OPEC to cut the prices of oil and gas for Asian consumers. India also aims to renegotiate LNG long-term contracts with Russia and the US.

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