India and Japan expressed concerns over paying 'Asian premium', plans to study LNG pricing

India and Japan have expressed concerns over paying " Asian premium" on liquefied natural gas (LNG) imports and decided to conduct joint study on its pricing to secure long-term LNG contracts at competitive rates.

"LNG prices in Asia are substantially higher than those of other major consuming regions such as Europe and North America," the two countries said in a joint statement.

Oil Minister M Veerappa Moily and Japan's Minister for Economy, Trade and Industry Toshimitsu Motegi said "the study is an important step towards working on rationalization of LNG prices in Asia Pacific."

The two ministers have signed an agreement on Monday to initiate a study on pricing of LNG in the Asia Pacific market. Moily is in Tokyo to attend the second LNG conference.

The statement said there should be a better pricing mechanism for importing gas. "Even as the position of natural gas as an alternative fuel for oil is fading and the rationality for such price formation is less clear compared to past, the majority of LNG contracts in the Asia Pacific market are long term with a pricing formula that is linked to the oil price," it said.

"Since the prices of individual contracts signed on a bilateral basis are confidential, there are no reliable price indices that accurately reflect the LNG supply and demand balance in the region at this point," it added.

Japan and India will work together for developing "a market environment that would enable effective, stable and globally competitive LNG procurement", it said.

Forming a transparent and globally competitive LNG price in the Asia Pacific market serves the common interests of Japan and India, it added.

The two countries will also consider diversifying sourcing of LNG, which will lead to increase of market connectivity and price convergence among regions. India and Japan have decided to "review current business practices that would hinder market liquidity' and to support the launch of a multilateral joint study group on LNG, including energy research institutes in LNG consuming countries, the statement said.