Tokyo Gas in talks with European firms to swap LNG cargoes

Tokyo Gas Co., the nation’s second-biggest buyer of liquefied natural gas, is in talks with European

companies to swap cargoes it owns from the U.S. with those in Asia to reduce shipping times and

costs.

The utility is offering cargoes from the Cove Point project on the U.S. East Coast, which is expected

to start up late next year and from which it’s contracted to buy 1.4 million tons a year, Executive

Officer Kentaro Kimoto said. Kimoto declined to identify the European companies Tokyo Gas is in

talks with and the volume it would resell.

“It takes a lot of days to bring LNG to our terminals in Japan from the U.S.,” Kimoto said in an

interview in Tokyo on Wednesday. “We can send cargoes to Europe and in return get the fuel in

swap deals with European players who have a position in Asia.”

Shipping U.S. LNG to Japan takes about 20 days, while the travel time to Europe is roughly 10 days,

according to Kimoto.

The utility is also seeking flexibility amid uncertainty over supply projects including one under

development that is led by Japan’s Inpex Corp. The country’s biggest oil and gas explorer said in

September the startup of the 8.9 million-ton a year Ichthys project was delayed until the third

quarter of next year. Tokyo Gas has a deal to buy 1.05 million tons annually from the project.

“The timing of the startup of Ichthys and Cove Point projects could make us oversupplied or

undersupplied,” Kimoto said. The company’s demand outlook is also uncertain as competition for its

customers in Japan will heat up after the country’s planned gas market liberalization starts in April

2017, he said.

Japan is among countries forecast to have an LNG oversupply in the coming years, transforming

some of the world’s biggest buyers of the fuel into sellers. Jera Co., a joint venture between Tokyo

Electric Power Co. Holdings Inc. and Chubu Electric Power Co., plans to announce a second flexible

deal by the end of this year that would allow it to resell the fuel to European customers as it seeks

outlets to offset possible demand declines at home.

Osaka Gas Co. intends to resell 2.5 million tons a year of LNG after it starts receiving supplies from

the U.S. Freeport project in 2018, according to spokesman Jun Fujii. The Nikkei newspaper said last

week the company is working on an agreement to resell as much as 800,000 tons a year to a unit of

Germany’s E.ON SE from the Freeport project. Fujii declined to comment on the report.

Meanwhile, Houston-based Cheniere Energy Inc. has sent at least 19 tankers of LNG abroad since its

Sabine Pass terminal in Louisiana started up earlier this year. By 2020, five terminals are expected to

be operating along the U.S. Gulf Coast and in Maryland. Global export capacity will surge 45 percent

and the share of the United States will jump to 14 percent from nothing, according to Energy

Aspects Ltd.

The possible European cargo swap deal is the latest step Tokyo Gas has taken to diversify its

operations and supply options. The company in 2014 started discussions with Korea Gas Corp. about

LNG supply and in April agreed to cooperate with Kansai Electric Power Co. The company may add

staff in Singapore as it expands, Kimoto said.

“A seismic shift is taking place in LNG markets,” Kimoto added. “We expect a shift from a rigid trade

practice to a flexible business form. We want to deal only with suppliers who are open to such

discussions.”

NGS INDIA