29 June 2017, News Wires – Japan has outlawed restrictions stopping customers from reselling cargoes of liquefied natural gas, in its latest move to liberalise a market where Japanese utilities have long been the biggest buyers.
The Japan Fair Trade Commission, concluding an investigation into the sector, said it was banning clauses limiting resale of LNG and called on companies to change their business practices for existing contracts, according to a Financial Times report.
The ruling is likely to mean more active trade in LNG cargoes by Japanese buyers at a time when growing supplies of super-cooled fuel from the US, Australia and Africa are expected to push down prices.
“Japanese users predict excess supply of LNG,” said the JFTC. “They are concerned that destination restrictions will prevent them from reselling excess LNG inside or outside Japan in the future.”
Historically, LNG buyers needed to agree rigid long-term contracts to get access to the fuel, often with strict resale restrictions and limits on price fluctuations.
But a growing supply glut has put more power in the hands of buyers over producers such as Qatar, the world’s largest LNG supplier.
Analysts see the LNG market bearing a greater resemblance to oil in the coming years, where cargoes can change hands multiple times before reaching their destination, with more trades done in the spot market.
The ruling could push other gas buyers in Asia to mount a similar challenge to major producers.
Japan’s Jera, a joint venture between utilities Chubu Electric and Tokyo Electric that is the world’s single largest LNG buyer, is seen likely to push Qatar to renegotiate long-term contracts on more favourable terms.
The JFTC decision is similar to a 2005 ruling in Europe, striking down contractual clauses that prohibited German gas companies from reselling Russian gas outside of Germany.
The JFTC said it had found a series of practices that were “likely” or “highly likely” to violate Japan’s anti-monopoly law, especially when cargoes are sold “Free On Board”, which means the buyer owns the gas as soon as it is loaded at an export terminal.
“This will provide political support to Japanese buyers in contract negotiations,” said one gas trader in Tokyo.
“However, they may have overlooked the fact that more and more Japanese buyers are becoming sellers too.” Many of Japan’s biggest gas companies have invested in overseas LNG projects.
Japan’s biggest suppliers of LNG are Australia, Qatar and Malaysia, followed by Indonesia, Russia, Brunei and the United Arab Emirates.
