Tokyo Gas in talks with European firms to swap US LNG cargoes

[TOKYO] Tokyo Gas, Japan's second-biggest buyer of liquefied natural gas, is in talks with European companies to swap cargoes it owns from the US with those in Asia to reduce shipping times and costs.

The utility is offering cargoes from the Cove Point project on the US East Coast, which is expected to start up late next year and from which its contracted to buy 1.4 million tons a year, Executive Officer Kentaro Kimoto said in an interview. Mr Kimoto declined to identify European companies Tokyo Gas is in talks with and the volume it would be resell.

"It takes a lot of days to bring LNG to our terminals in Japan from the US," Mr 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 US LNG to Japan takes about 20 days while the travel time to Europe is roughly 10 days, according to Mr Kimoto.

The utility is also seeking flexibility amid uncertainty over supply projects including one under development led by Japan's Inpex Corp. Japan'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," Mr 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 liberalisation starts in April 2017, he said.

Japan is among countries forecast to have an LNG oversupply in coming years, transforming some of the world's biggest buyers of the fuel into sellers. Jera, a joint venture between Tokyo Electric Power and Chubu Electric Power, plan 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 intends to resell 2.5 million tons a year of LNG after it starts receiving supplies from the US 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 German's E.ON SE from the Freeport project. Mr Fujii declined to comment on the report.

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. The company may add staff in Singapore as it expands, Mr Kimoto said.

"A seismic shift is taking place in LNG markets," Mr Kimoto said. "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."

BLOOMBERG