Photographer: Jasper Juinen/Bloomberg

World’s Biggest LNG Buyer Becomes Seller as Gas Glut Builds

  • Jera to sell as much as 1.5 million metric tons of LNG to EDF
  • Supply contract starts June 2018, to run until December 2020

Japan’s Jera Co., one of the world’s largest buyers of liquefied natural gas, agreed to sell the fuel to a unit of France’s Electricite de France SA.

Jera, a joint venture between Tokyo Electric Power Co. and Chubu Electric Power Co., will sell as much as 1.5 million metric tons of LNG between June 2018 and December 2020, it said in a statement Thursday. The price of the LNG will be linked to European gas market prices, according to the statement.

Jera’s debut as a seller to Europe underscores how the oversupplied market has challenged traditional exporters, who have relied on steady, one-way demand from buyers in countries like Japan, the world’s largest consumer of the fuel. Japan’s new role as a middleman adds further pressure on LNG producers, who are losing bargaining power because of the glut.

“This deal represents an entry point for Jera into the European market, at a time when the company’s LNG contracts from the U.S. will be ramping up significantly,” Michael Jones, a Singapore-based gas and power analyst at Wood Mackenzie Ltd., said by e-mail. “The demand outlook in Jera’s home market remains uncertain, so EDF gives Jera the ability to offload some flexible U.S. volumes into Europe.”

For a story on Japan LNG prices falling to the lowest since 2005, click here.

Japan’s LNG consumption is expected to fall to 72 million tons in 2020 and 62 million tons in 2030, compared to 85 million tons in 2015, according to data compiled by the government and the International Energy Agency. Global demand is expected to grow by 45 percent between 2014 and 2020, according to a government presentation from earlier this month.

Chubu Electric Power, along with Osaka Gas Co., struck a deal in 2012 to purchase supplies from the Freeport LNG project in the U.S., which is expected to ship its first cargo in 2018. The agreement doesn’t have a destination clause and the price of the fuel will be based on Henry Hub benchmark.

“Japanese utilities are faced with uncertainty in their future LNG needs due to nuclear restarts, weak domestic demand, strong renewable growth and market liberalization,” said James Taverner, an analyst at IHS Inc. in Tokyo. “Securing an LNG supply contract that gives the Japanese seller flexibility over volumes helps manage this uncertainty.”

The average price of LNG shipments into Japan was about $6.32 per million British thermal units in April, the least since August 2005, according to Bloomberg calculations based on preliminary data from the Ministry of Finance.

“We aren’t just in talks with EDF,” said Hiroki Sato, vice president of fuel procurement at Jera. “We are thinking of cooperating with many different companies.”

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