Tokyo Gas seeks to renew deals, eyes new projects: Report

Japan's largest city gas firm, Tokyo Gas Co Ltd, has said it will need to sign further supply deals for liquefied natural gas (LNG) to cover the company's requirements from 2007 onward.

"We have covered our LNG requirements until 2006 under our existing contracts. To cover demand from 2007 onward, we are seeking to renew contracts as well as eyeing new projects," Junichi Namiki, senior manager at Tokyo Gas's gas resources department, told Reuters in an interview.

Tokyo Gas imports about seven million tonnes of LNG per year from countries and regions such as Malaysia, Alaska, Brunei, Australia, Indonesia and Qatar under existing long-term contracts.

"As for new LNG projects, Russia's Sakhalin and Indonesia's Tangguh project are seen as some of the most promising," Namiki said.

Yet amid uncertainty over the outlook for long-term gas demand, the firm called for more flexible LNG purchasing terms, as well as lower prices to help growth of LNG trade in Asia.

LNG supply contracts traditionally are fixed on a long-term basis offering suppliers guaranteed revenue and buyers security of supply.

But Asian buyers have sought more flexible importing terms, given uncertainties in domestic economies and the impact of ongoing deregulation on demand.

"We can no longer count on the robust growth we enjoyed before, due to the growing competition between energy sectors (as a result of deregulation). Our demand outlook depends on how competitive we can remain," Namiki said.

The company said in April it expected its consumption of LNG to increase to 9.02 million tonnes by fiscal 2006/07 from 7.02 million currently.

The projected increase was due to a rise in the number of cogeneration plants and expanded sales to power producers.

Japan's top power utility, Tokyo Electric Power Co Inc (Tepco), and Tokyo Gas will pay a record low rate for some imports of LNG from 2003, as a glut in supplies forced Malaysia to cut prices by five per cent, the two firms said last month.

"Producers and consumers will need to cooperate to expand LNG demand," Namiki said.

In March, Tokyo Gas and Tepco renewed contracts to buy LNG from Malaysia with new clauses that provide the purchasers with flexibility on buying terms.

Under the new agreement, Tepco has an option to curb annual purchases by 700,000 tonnes a year while Tokyo Gas can reduce its purchases by 500,000 tonnes.

A second clause will allow part of the cargoes to be shipped on an FOB basis, rather than ex-ship.

An FOB basis allows the buyer to use its own LNG tanker or to make its own arrangements for a vessel, leading to reduced costs. With ex-ship, the seller makes all the arrangements for a vessel.

Tokyo Gas plans to increase the percentage of LNG purchases to be shipped on an FOB basis.

"Currently, only 920,000 tonnes of LNG are shipped on an FOB basis. But we plan to purchase an additional two million tonnes of LNG under FOB pricing," Namiki said.

Namiki also said the firm would seek short-term contracts to increase flexibility as well as long-term contracts to secure supply.

Some Asia-Pacific producers such as Indonesia, Australia and Malaysia are eyeing demand on the U.S. West Coast and hope to begin shipping there in the next decade.

"The possible emergence of another big buyer in the Asian market could change the demand/supply gap in Asia. In that sense, a certain percentage of long-term contracts would still be needed," he said.(*)