Japan LNG Giant Expands Europe Links Amid Demand Uncertainty

  • Japan’s Jera to announce second European supply deal this year
  • Nuclear restarts, new coal plants cloud Japan gas outlook

Japan’s Jera Co., one of the world’s largest buyers of liquefied natural gas, plans to announce a second deal to resell the fuel to European customers as it seeks overseas outlets to offset possible demand declines at home.

The latest agreement, which followed an accord signed in May with a unit of France’s Electricite de France SA, will help the company boost sales to about 1.5 million metric tons a year soon, Jera Senior Executive Vice President Hiroki Sato said in an interview. The new deal will allow the joint-venture between Tokyo Electric Power Co. Holdings and Chubu Electric Power Co. to adjust the volume it sells depending on its own demand.

“It’s important to develop a scheme like this amid demand uncertainties about the future of nuclear reactor restarts, and the growth of renewables and coal plants,” Sato said Wednesday in Tokyo. Having flexible sales contracts allows Jera greater negotiating power for its own future supply deals, he said.

Forty of Japan’s 42 operable nuclear reactors remain offline amid safety concerns following the March 2011 Fukushima disaster despite government efforts to return the fleet to operation. Electricity generated from coal is forecast to overtake that from LNG and output from renewable energy will rise by 65 percent in Japan by March 2026, according to an industry report last month.

Supply Balance

Jera’s earlier deal with EDF is just the start of the Japanese company’s efforts to expand its reach into European LNG terminals, storage and pipelines as it seeks to diversify markets into which it can sell, Sato said. The company has contracts to buy U.S. LNG, a purchase deal linked to European index prices and another connected to Asia spot prices, Sato said.

“Diversity in sources is important for security of supply, and diversity in pricing mechanisms to help manage price risk,” James Taverner, a Tokyo-based analyst at IHS Inc., wrote in an e-mail. “Securing an LNG supply contract that gives the Japanese seller flexibility over volumes helps manage” uncertainty in their future LNG needs, Taverner wrote.

Japan, China and South Korea, which account for more than half of the global LNG trade, will be oversupplied by about 20 billion cubic meters in 2017 to 2018, the International Energy Agency said in a report last month. Sato believes the glut offers a chance to develop a regional trading hub that would allow Asian buyers to move away from oil-linked prices.

“When an Asian market is created, prices will rise and fall depending on whether demand and supply balance is tight or loose,” Sato said. The supply glut “is the chance of a lifetime.”

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