June 17 (Bloomberg) -- Chubu Electric Power Co., Japan’s second-biggest purchaser of liquefied natural gas, plans to increase its use of a type of LNG contract that allows buyers more flexible terms and competitive prices.
The Nagoya-based utility will get a quarter of its LNG through so-called portfolio contracts by the early 2020s, up from about 15 percent now, Hiroki Sato, the general manager of the fuels department, said in an interview.
Chubu is attempting to diversify its purchases amid rising supply from producers including Australia and Russia and as North America is poised to become a major exporting region. Buyers benefit from the contracts because they offer cheaper, stable supplies from multiple sources while sellers can choose cargoes from among global assets to maximize profits, Sato said.
“Sellers, particularly oil and gas majors, want to do a portfolio contract because they can optimize their operations to increase profits,” Sato said in an interview at Chubu’s Tokyo office on June 12. “We, in return, want to have economic LNG and more flexible terms.”
Chubu Electric agreed in May to buy about 720,000 metric tons of LNG annually for 20 years from Royal Dutch Shell Plc through its third long-term portfolio contract. The company, which signed the first such deal among Japanese power utilities in 2010, has similar agreements with BG Group Plc and BP Plc. LNG users have traditionally sourced supplies directly from specific projects in exporting countries such as Malaysia, Qatar and Australia.
The Shell contract allows Chubu Electric to resell LNG in the spot market, people with knowledge of the deal said earlier this month. The price level is “very competitive” compared with typical deals among Asian buyers, Sato said. He declined to give details of the price formula because they’re confidential.
Chubu Electric plans to restructure its portfolio of LNG contracts by the early 2020s as some deals will expire in coming years, Sato said. A long-term LNG contract with Qatar for 4 million metric tons a year will end in 2021, which accounts for about 30 percent of Chubu’s total imports, according to data compiled by Bloomberg.
To contact the editors responsible for this story: Pratish Narayanan at email@example.com Ramsey Al-Rikabi