August 10, 2016 / 10:36 AM / 3 years ago

Japan's Jera plans 42 percent cut in long-term LNG contracts by 2030

TOKYO (Reuters) - Japan’s Jera Co, the world’s biggest importer of liquefied natural gas (LNG), is planning to cut the amount of gas it buys under long-term contracts by 42 percent by 2030 from current levels, the company’s president told Reuters.

JERA Co President Yuji Kakimi poses for a picture before the Reuters Global Commodities Summit in Tokyo, Japan October 21, 2015. REUTERS/Toru Hanai/File Photo

The company now buys 34.5 million tonnes per annum (mtpa) of LNG under contracts for 10 years or longer. By 2030, that will drop to about 20 million mtpa, President Yuji Kakimi said.

Jera will take this step to prepare for the liberalization of the Japanese electric market that has clouded the outlook for LNG purchases by the country’s utilities, said Kakimi. Future LNG consumption may also be limited by nuclear power plant restarts and the installation of renewable generation such as solar power.

The company’s cuts in long-term purchase puts question marks over planned large-scale, multi-billion dollar LNG production projects, which rely on long-term contracts to gain financing. Asian LNG markets are also suffering through a 72 percent slump in prices since February 2014.

Jera, a joint venture between Tokyo Electric Power and Chubu Electric Power, takes in 40 mtpa of LNG.

The company’s long-term contracts start expiring in 2018 and more than 10 mtpa will conclude by the early 2020s. Kakimi said the company has no plan to sign new pacts for the foreseeable future.

To offset the decline as the long-term contracts expire, Jera will sign long-term agreements for about 5 mtpa of LNG to stay at the 20 mtpa level, he said.

Japan’s retail electricity reform that started in April, which ended regional monopolies, has thrown future power sales into doubt and forces utilities to reduce long-term contracts to cover the minimum essential requirements, he said.

“The power generators cannot have fuel for 20 years without having long-term power sales contracts,” he said. “The long-term portion will decline rapidly with the progress of liberalization like in Europe.”

Japan, the world’s biggest LNG buyer, will see imports decline to 62 million tonnes in 2030, from a record 88.5 million tonnes in 2014 because of a shift to nuclear power as plants restart and more renewable energy is added to the grid, the country’s government has forecast.

Jera, which buys about half of Japan’s LNG imports, sees its annual LNG trading volume, or the amount it consumes plus resale cargoes, in 2030 to be closer to the low end of its projected 30 to 40 mtpa range, Kakimi said.

He said that Jera would be burning about 28 mtpa of LNG a year by 2030, based on the government projections of 62 million tonnes of imports.

Jera’s trading volumes would rise toward 40 mtpa if its joint venture companies’ nuclear plants did not resume operations as projected, he said.

At 40 mtpa of trading volumes, long-term contracts would remain unchanged at about 20 mtpa, with medium- and short-term contracts at 10 mtpa, and the remaining 10 mtpa as spot volumes, he said.

“There is an absolute amount of electricity that we would like to produce using LNG and 20 million tonnes is the essential volumes that we are sure of,” he said.

Editing by Christian Schmollinger

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