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Tepco to Purchase LNG With Other Japanese Utilities to Cut Costs

Tokyo Electric Power Co. (9501) plans to expand imports of liquefied natural gas to as much as 40 million metric tons a year by teaming up with other companies to negotiate lower prices for the fuel.

The utility known as Tepco aims to reduce annual fuel costs by about 650 billion yen ($6.2 billion) through the joint purchases and other measures, it said in a business turnaround plan released today in Tokyo. Tepco, Japan’s biggest power company, typically imports about 20 million tons a year.

The Tokyo-based utility has relied on thermal-power generation since shutting its last operating reactor in March 2012 in the wake of the Fukushima disaster. Tepco also plans to reduce fuel costs by restarting reactors at its Kashiwazaki Kariwa nuclear plant in July.

“Joint purchases could help Japan improve bargaining power and reduce fuel costs,” Osamu Fujisawa, a Tokyo-based independent oil economist, said by phone today before the plan was announced. “The question is whether Tepco and partners can share a common interest, as they have different needs,” Fujisawa said.

Tepco plans to set up a venture for joint purchases by the end of fiscal 2014 after selecting partners, the company said in the business plan approved by the government. The company also plans to cooperate with the partners on procurement and transportation of the fuel and replacement of thermal power plants, it said.

Tepco started seeking proposals to cooperate in October 2012. The utility agreed with Chubu Electric Power Co. to set up a venture to build and operate a coal-fired plant with capacity of 600 megawatt in Ibaraki prefecture, northeast of Tokyo.

Shale Gas

“As natural gas accounts for 70 percent of Tepco’s fuel costs, it is essential to drastically lower gas prices and reduce the fuel bill,” the utility said in the turnaround plan. Buying lean LNG such as from shale gas in North America, which has lower calorific value, will be “key” to cutting fuel costs, it said.

Tepco’s previous business plan called for imports of as much as 10 million tons a year of lean LNG, which is increased in the new strategy. The company is considering to invest in upstream natural gas projects to lower fuel costs and secure supply, it said.

To contact the reporter on this story: Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net

To contact the editor responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net

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