September 26, 2019 / 9:15 AM / 22 days ago

Tokyo Gas aims to renegotiate LNG contracts, raise flexibility

TOKYO (Reuters) - Japanese gas distributor Tokyo Gas aims to renegotiate long-term contracts with liquefied natural gas (LNG) suppliers to boost flexibility by scrapping clauses that restrict where the cargoes can be sold, its president said on Thursday.

Japan’s Fair Trade Commission in 2017 ruled that destination restrictions preventing the resale of contracted LNG cargoes breached competition rules, but Japanese companies have been slow to bring the terms of existing deals into compliance.

“For most new term contracts, we basically try to win deals that come destination-free,” Takashi Uchida, president of Tokyo Gas, told reporters on the sidelines of the LNG Producer-Consumer Conference in Tokyo.

“For our existing long-term contracts such as 20-year contracts, we are trying to renegotiate to gain flexibility in destination when prices are reviewed,” he said.

Buyers and suppliers typically review the prices of long-term contracts every four to five years.

Tokyo Gas, Japan’s biggest gas seller in cities and a major buyer of LNG, has stepped up its efforts to diversify supply sources and price formulas by using different types of price index in an effort to improve competitiveness, Uchida said.

Earlier this year, the company signed a deal with Royal Dutch Shell for the long-term supply of LNG, partly using a coal-linked pricing formula - an unusual move for an Asian LNG buyer.

“I believe we can be even more creative,” he said, adding that recent oversupply in the market made it easier to obtain good terms.

Japan’s JERA, the world’s biggest buyer of LNG, has renegotiated some of its contracts with suppliers to drop destination clauses, Sunao Nakamura, JERA’s managing executive officer, told Reuters recently.

Reporting by Yuka Obayashi and Jessica Jaganathan; Editing by Dale Hudson

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