* First concrete step towards LNG buyers' group
* Tepco plans joint venture to negotiate spot, contract
* Producers may resist joint purchases
By Aaron Sheldrick and James Topham
TOKYO, Jan 17 In the first concrete moves
towards forming a buyers' group for liquefied natural gas (LNG),
Tokyo Electric Power Co is proposing to rope in
domestic and foreign firms to jointly procure up to 40 million
tonnes a year of the fuel to cut costs.
The Japanese utility's plan comes as importers in Asia, the
biggest market for the superchilled fuel, are stepping up
efforts to leverage their buying power to reduce what they say
are inflated prices because of the practice of linking the price
of gas to oil.
Officials from India, China, South Korea, Japan and Taiwan
which import about 70 percent of the world's LNG have held talks
last year but no firm steps had materialized. LNG producers are
resisting the idea of joint purchases, fearing that an end to
long-term supply contracts with individual buyers will hurt
Tokyo Electric's LNG proposal is outlined in a business
revival plan that was approved by the government this week to
cut costs at the utility, which is facing compensation demands
and cleanup costs of tens of billions of dollars after the
meltdowns at its Fukushima Daiichi nuclear plant north of Tokyo.
The utility, known as Tepco, said it will start talks this
year with other LNG buyers about setting up a joint purchasing
company to negotiate with suppliers, aiming to achieving cost
savings for itself of as much as 650 billion yen ($6.24
The venture would also invest in gas projects directly to
secure LNG supplies, Tepco said.
"Natural gas accounts for 70 percent of Tepco's fuel costs,
so it is essential to drastically lower gas prices and reduce
the fuel bill," the utility said in the revival plan.
Tepco will seek partnership with both Japanese and overseas
companies, spokesman Yusuke Kunikage said by phone on Friday.
The purchases would cover both spot and contractual volumes, he
Shipments of LNG to Japan, the world's biggest buyer of the
fuel, which takes in about a third of global production, have
soared after the Fukushima disaster in March 2011 led to the
gradual shutdown of all of the country's nuclear units.
REBUFFED BY SUPPLIERS
Calling for lower prices has been a constant refrain of
buyers in recent years and Asian consumers have been exploring
ways to buy supplies in partnership to cut costs.
Sellers, though, have rejected the demands, with big oil
majors like Chevron Corp and Exxon Mobil Corp
insisting that multi-year supply contracts in their current form
are necessary to ensure they can take on the risk of developing
projects that take years to build and cost billions of dollars.
Joint purchases may also be difficult given the practice of
restricting destinations in clauses on supply contracts.
Cooperation among Japanese buyers could also fall foul of
domestic anti-competition rules, said Tom O'Sullivan, founder of
independent energy consultancy Mathyos Japan.
"Combining the purchasing power for over 50 percent of a
single commodity by Japanese electric power companies, even a
commodity such as LNG that is now strategic to Japan's national
interests, strikes me as a move that might deserve scrutiny by
the Japanese Fair Trade Commission or the World Trade
Organization," O'Sullivan said.
LNG is expensive in Asia and prices are now more
than four times the cost of natural gas in the United
States, where a boom in shale oil and gas is taking place. Asia
LNG is now about $19 per mmBtu versus $4.37 per mmBtu for U.S.
As a result, Japan had its first trade deficit in 2012 since
the second oil shock that followed the Iranian revolution in
Tepco and other Japanese utilities burned 5.3 million tonnes
of LNG in December, a monthly record, their industry association
said on Friday.
Tepco used about 24 million tonnes of LNG in 2013, according
to data from the company, while Japanese imports totalled 79.4
million tonnes in the first eleven months of 2013.