* Main buyers own LNG tankers, prefer no destination restriction
* Japan buyers focus more on lower costs than stable supply
* Japan LNG costs soar on safety nuclear shutdown after Fukushima disaster
By Risa Maeda
TOKYO, Oct 17 (Reuters) - Two of Japan’s biggest buyers of liquefied natural gas, Tokyo Gas Co and Osaka Gas Co , have urged suppliers to drop destination curbs on free-on-board contracts in Asia, taking a first step towards redrawing pricing norms to increase flexibility.
Buyers from Japan, the world’s biggest consumer of LNG, are stepping up pressure on suppliers to change traditional pricing strategies since last year’s Fukushima disaster led to record demand from gas-powered plants to replace lost nuclear power.
“We would like to see more flexibility in LNG procurement, including contracts without clauses restricting destination,” an Osaka Gas spokesman said on Wednesday.
A Tokyo Gas spokesman echoed the comments, saying the company was trying to get rid of clauses restricting LNG destinations when it negotiates with sellers.
Tokyo Gas and Osaka Gas between them operate 14 LNG carriers, more than half of those owned or managed by gas and power utilities in Japan, and have increased usage of FOB contracts.
Free on board is a shipping practice that provides for deliveries where the buyer of a commodity provides the transport and takes ownership of the cargo at the point of loading.
In Asia, where LNG is usually bought on long-term contracts with prices linked to oil rates, users traditionally preferred deliveries restricting the destination to ensure stable supply, helping prevent the development of an active spot market.
“The restricting clause in an FOB contract keep buyers from having cargoes delivered anywhere they like,” said Takao Arai, who until June was a managing director in charge of gas procurement at Japan’s biggest LNG buyer, Tokyo Electric Power Co (Tepco).
“We understand these clauses on FOB contracts apply only to Asian users,” he said at an LNG seminar in Tokyo.
The practice is not common in Europe, where LNG sellers are deterred by the violation risk of anti-monopoly laws, said Arai, who is now auditor of oil refiner Fuji Oil Co, a Tepco subsidiary.
Tepco endorsed Arai’s view, with a spokesman saying the company preferred that Asian buyers should have LNG contracts free of curbs on destinations.
The problem has come to a head with LNG buyers from Japan scouring the world for spot supplies required to generate electricity after the Fukushima disaster left all but two of the country’s nuclear plants idled.
Japan is focusing on cheaper LNG procurement procedures after it imported a record 83 million tonnes of LNG in the year to March 2012 for 5.4 trillion yen ($68 billion), which helped push the world’s third biggest economy into a trade deficit.
Out of Japan’s total LNG imports in the year to March 2012, Tepco, Japan’s No.1 user, imported 24 million tonnes. Tokyo Gas imported 11 million tonnes and Osaka Gas 8 million tonnes, according to the companies.
A policy shift away from nuclear energy announced in September also underlines Japan’s greater reliance on gas, the cleanest among fossil fuels, in the mid- to long term.
Japan’s utilities want greater flexibility in LNG purchases as their newfound reliance on gas-powered plants to tide over a nationwide shutdown of nuclear plants makes it hard to meet unexpected changes in demand with alternative fuel.
With the possibility of North American shale gas imports on the horizon, oil-linked LNG pricing in Asia will no longer be feasible within a few years, Minister of Economy, Trade and Industry, Yukio Edano, who also oversees energy issues, said last month.
Japan brought the same message to Qatar at a bilateral meeting of energy and industry ministers this week, a Japanese trade ministry official said on Wednesday. In a separate meeting with India in Tokyo last week, the two major LNG consuming countries agreed to do a joint study on LNG pricing in Asia.
“It’s understandable buyers are looking for diversification,” Reinhardt Matisons, senior vice president commercial & president marketing at Woodside, an Australian LNG supplier to Japan, said at the seminar in Tokyo on Tuesday.
“But there are different risks with delinking. There’s likely to be contract risks with new deals. The oil linkage has been a benefit in securing safe and reliable supplies for Japan,” he said.
Arai said he thought the differences across the three markets of Europe, North America and Asia would be narrowed by a rise in LNG transactions, especially in Asia, and greater use of the spot market and unconventional and less costly technologies, such as shale gas and floating LNG terminals.
Spot and short-term transactions accounted for more than 25 percent of total LNG trade in 2011, versus about 15 percent five years earlier, according to data by LNG research body GIIGNL.
Additional reporting by Rebekah Kebede; Editing by Aaron Sheldrick and Clarence Fernandez