Japanese Utilities Step up LNG Purchases

To make up for the continued shortfall in electricity generation from the dozens of idle nuclear power plants, Japanese utilities are increasing their purchases of LNG from abroad. Tohoku Electric Power Co. announced on Feb. 4 that it signed a 15-year contract to buy LNG from Qatar. The deal, which begins in 2016, will allow for the import of 60,000 to 90,000 tonnes of LNG per year from 2016 to 2018, and 180,000 tonnes thereafter for the duration of the contract.  

This followed the agreement made by Toho Gas, which last week announced that it signed its first contract based on a link to Henry Hub prices rather than traditional oil-linked contracts. Toho signed a 20-year deal with Sempra LNG to take gas from the proposed US Cameron LNG project in Louisiana. The export terminal is awaiting the go-ahead from the U.S. Department of Energy. The project is notable because it is backed by a 33.2% combined stake from a consortium of Japanese companies, according to Platts. Mitsui, Mitsubishi and Nippon Yusen Kabushiki Kaisha went in together on the export project, the first time Japanese companies have done so in the U.S, and a sign that Japan sees the U.S. as an increasingly important source of LNG.

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Last year Kansai Electric signed a 20-year deal to take LNG from the proposed Cove Point terminal on the Chesapeake Bay in Maryland. That project is facing blowback from environmental groups and has yet to receive approval. Still, Kansai's deal was also linked to Henry Hub prices, an indication that as more U.S. LNG reaches global markets, the higher volume will slowly chip away at the practice of linking prices to the price of oil. And with Henry Hub prices much lower than the global price of oil on an energy-equivalent basis, Japanese companies feel confident that they will get a better deal.

By. James Burgess of Oilprice.com