May 25, 2018 / 10:13 AM / 7 months ago

Japan's Kansai Electric to cut LNG deals as it boosts nuclear power

OSAKA, Japan (Reuters) - Japan’s Kansai Electric Power Co will cut spot purchases of liquefied natural gas and is cautious on signing long-term LNG supply contracts as it slowly lifts the share of nuclear power in its generation mix, a senior official said.

The Osaka-based utility was the most reliant on nuclear energy in Japan, using reactors for about half of the power it produced before the Fukushima nuclear disaster in 2011.

Of the eight reactors that have resumed generating power in Japan - a fifth of available units - after passing tougher safety standards imposed following the disaster, four were from Kansai Electric.

The company, which has seven reactors in all, ramped up its nuclear plant utilization rate to a six-year high of 18 percent in 2017/18, after three years of almost nil usage. That helped reduce its LNG consumption by 16.3 percent to 7.56 million tonnes.

The utility will adjust LNG volumes by first cutting spot and short-term LNG purchases, which now account for about 20 percent of total, Shingo Shimada, general manager of fuel planning group, told Reuters in an interview.

“We see LNG requirements to be declining slightly,” Shimada said when asked whether the company’s still keen on signing new long-term LNG contracts.

“That is because it’s difficult to project demand due to the power liberalization and the restart of nuclear plants. We have to be cautious on that.”

Kansai Electric expects to boost the ratio of nuclear, hydro and renewables in its power generation mix to more than 50 percent of total in the future, from about a quarter in the year ended March 31, with the most increase coming from nuclear energy.

In existing long-term LNG supply deals, Shimada said the company will work to remove destination clauses that restrict where the cargoes can be sold, but added that negotiations with sellers would take time.

The world’s top LNG buyer, Japan’s JERA Co, and Tokyo Gas have won flexible destination clauses from Malaysia’s Petronas in new long-term contracts that are in line with the Japanese anti-trust body’s ruling last year that declared the destination restrictions to be anti-competitive.

Kansai Electric expects to raise the ratio of free-on-board contracts from about 20-30 percent now to boost its trading flexibility, Shimada said.

Reporting by Osamu Tsukimori; Editing by Manolo Serapio Jr.

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