Tokyo Gas and Kogas Join Forces in Effort to Tamp Down LNG Costs

Tokyo Gas Co. is teaming up with Korea Gas Corp. on gas imports, as the Japanese company seeks to drive down prices of what has become the nation’s dominant energy source since the 2011 Fukushima disaster.

The companies will begin discussions on supplying each other with liquefied natural gas, cooperating on procurement of the fuel and jointly investing in upstream projects, Satoshi Tanazawa, general manager for the energy resources planning section of Tokyo Gas, told reporters today.

The agreement aims to erode the so-called Asian premium paid by gas buyers in the region, where the fuel must be shipped by tanker in liquid form and contracts are linked to the price of oil. Japanese buyers paid an average $16.18 per million British thermal units in June, the last month for which Finance Ministry data is available. Gas at Henry Hub in Louisiana sold for an average of $4.46 during that month.

Combining Tokyo Gas’s buying power with that of Kogas will give the companies increased bargaining power in the market, Tanazawa said.

“We have to do something to cut prices,” Tanazawa said, adding that deals with other LNG buyers are possible. “By teaming up, our LNG buying volume becomes impossible for buyers to disregard.”

The company known as Kogas, Korea’s sole LNG importer, bought 39.3 million metric tons of the fuel last year, making it the world’s biggest buyer.

Idled Reactors

Tokyo Gas, which purchased 11.8 million tons of LNG in the year ended March 2014, is Japan’s biggest gas supplier, and its third biggest importer of the fuel after Tokyo Electric Power Co. and Chubu Electric Power Co.

Japan has grown increasingly reliant on gas to meet its power needs since the idling of its nuclear fleet after the meltdowns at Tokyo Electric’s Fukushima Dai-Ichi power station. Before the accident, Japanese reactors provided about a third of the nation’s electricity.

Korea and Japan together bought 123 million tons of LNG in 2012, more than half of the world’s total purchases, according to BP Plc data.

Kogas and Tokyo Gas have been among the most active participants in LNG projects around the world, with the Korean company contracted to purchase 49.4 million tons between this year and 2037, according to data compiled by Bloomberg. Tokyo Gas is contracted for 17.8 million tons through 2040, according to the data.

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