TEPCO dash for gas continues to expand

Japan’s largest power utility, Tokyo Electric Power Company (TEPCO), has stepped up its long-term LNG procurement drive, committing to purchase a total of 800,000 tonnes per annum (tpa) of hub-indexed LNG from Japanese sogo shosha’s Mitsui and Mitsubishi.

TEPCO said in a statement that it had signed a preliminary agreement with Mitsui to purchase 400,000tpa of LNG from the Cameron LNG project in Louisiana over a 20-year period from 2017.

The TEPCO said it was in the final stages of negotiations for a deal with Mitsubishi on the same terms. The two agreements also include provisions for TEPCO to purchase an undisclosed optional amount which is currently under discussion. The two Japanese trading houses joined Sempra Energy’s planned 12mtpa Cameron LNG project last April, agreeing to lift 4mtpa each (see GLM 20 April 2012).

A number of Japanese utilities, including Chubu Electric and Osaka Gas, have already signed tolling agreements to lift LNG from the US as part of a broader push to ensure price diversity and flexibility and potentially cheaper contractual prices.

The deal is TEPCO’s first long-term contact to be indexed to the US Henry Hub price benchmark. The company’s financial predicament and its reliance on state funds to both pay compensation to the victims of the Fukushima nuclear crisis and source LNG to replace lost nuclear generation capacity has limited its ability to commit to upstream and infrastructure investments that would allow it to commit to tolling agreements to lift US LNG in its own right.

As a result, TEPCO has turned to Japan’s trading houses to help meet its long-term LNG requirements, which as part of a 10-year action plan include importing up to 10mtpa of lean LNG to drive down its procurement costs.

TEPCO’s policy of partnering with Japanese entities to secure its LNG requirements has already seen it join with Mitsubishi when the two companies formed a consortium in June 2012 along with shipping firm NYK Lines, and state Japan Oil, Gas, and Metals National to purchase an additional 400,000tpa of LNG from, and an 8% equity stake in the Wheatstone project in western Australia (see GLM 22 June 2012).

Terminal enhancements

TEPCO said that in addition to the 800,000tpa from Cameron, it was also in discussions for a further 1.2mtpa of long-term “lean LNG from multiple sources”, which would be also be hub-indexed, although the company declined to disclose whether it was in talks with one or various counterparties.

The rebalancing of TEPCO’s long-term portfolio to incorporate LNG of a leaner specification will require an overhaul of the operational capabilities of its import infrastructure to store lean and rich LNG. And the Japanese utility said in a separate release on Wednesday that it planned to construct two additional 125,000cbm storage tanks at its Futtsu terminal by March 2018 to accommodate lean LNG which would give TEPCO the flexibility to import rich or lean volumes to the facility.

The state-controlled company also indicated that it will convert its existing 14mtpa capacity Higashi Ohgishima facility to import lean LNG by March 2018.