Tokyo-headquartered JERA is the world’s largest single importer of LNG. The trading company formed in spring 2015 as a 50-50 partnership between
However, the market is changing. In 2016 Japan – which buys more LNG than any other country – took in a total 83.3 mta, down 2 per cent on-year.
JERA has pledged to cut the volumes it buys under long-term contract and to build up its LNG portfolio and the fleet under its control. Ahead of Gastech in Tokyo in April, LNG World Shipping editor Karen Thomas asked JERA president Yuji Kakimi to outline his plans.
What are JERA’s priorities in forming an LNG-procurement portfolio?
Yuji Kakimi: We are aiming to form one that is appropriate. In terms of regions, we will diversify our procurement by a quarter each to North America, Australia, the Middle East and others.
In terms of price index, we will lower the proportion of oil-linked contracts that make up the bulk of the current contract, to around 50 per cent.
And with contract terms, we will lower the proportion of long-term contract to around 50 per cent. A quarter will be formed by mid to short-term contracts and the rest will be procured on the spot market.
However, in Japan, uncertainty surrounding LNG demand has increased, because of the number and the timing of recommissioned nuclear-power plants, the amount of renewable energy introduced and the impact of deregulation [of the Japanese gas market]. Our priority is to respond flexibly to these uncertainties.
What volumes of LNG have you secured so far, with which suppliers and on what terms?
Our offtake volume of LNG is approximately 35 mta, 80 to 90 per cent procured through term contracts. Recently, to enhance our flexibility, we have entered into agreements with EDF Trading and Centrica to sell LNG in Europe.
Also, on the buying side, we have entered into a non-binding agreement with the Jordan Cove LNG project and we are continuing our discussions.
What are JERA’s plans when it comes to investing in new LNG production to secure future supply – and on what terms?
New LNG projects are needed to prepare for tight supply and demand in the future. JERA is positively considering supporting projects that will change the Asian LNG market and innovate the LNG industry, introducing state-of-the-art technologies by securing long-term contracts.
Our target is to have 12 upstream projects in 2030, up from our current six.
What proportion of its total LNG volumes does JERA expect to sell on outside Japan?
We cannot comment on that; it all depends on demand from Tepco Fuel & Power and from Chubu Electric Power Co.
What are JERA’s priorities for LNG shipping?
We aim to realise stable and economic transport, based on delivering Tepco Fuel & Power and Chubu Electric Power FOB contracts, participating in LNG transport through our subsidiary, LNG Marine Transport.
We aim to expand earnings opportunities in the fuel value chain. And we are considering utilising our LNG fleet to realise sales to third parties inside and outside Japan, optimising the operation to expand our LNG-trading business.
How many vessels are contracted to JERA, who are the owners and how quickly will you expand the capacity that you control?
Now, we have a fleet of six vessels. Ten additional vessels that we have secured will enter service by the end of 2018. Two of the 10 vessels we have secured will be delivered to JERA for the Gorgon LNG and Wheatstone LNG projects.
Our vessels will number eight by the end of 2017.
Do you still plan to increase your fleet to 30 vessels by 2030 – and how will you achieve that growth?
We will increase the number of vessels for coming FOB contracts and for tolling agreements that have yet to be concluded. By 2018, we aim to transport approximately 10 mta using our own fleet.
As we aim to procure 30-40 mta of LNG in 2030, the same volume as at present, we are scheduling to increase the number of vessels by acquiring equity LNG and by increasing the proportion of FOB contracts that have no destination restrictions.
What are your plans for direct investments in new LNG tonnage or for shipowning partnerships?
We have invested in 10 of the 16 vessels and we will consider the balance between direct investment and charter, watching the trends in shipbuilding and in the charter market.
What are JERA’s plans for downstream distribution of LNG?
Although our LNG procurement is mainly for Tepco F&P and Chubu Electric, we are selling LNG through the spot market, taking into account supply and demand and market trends. We have agreements with Inpex and Shizuoka Gas to sell LNG in Japan.
Looking overseas, we have entered highly flexible agreements with EDF Trading and Centrica to sell LNG in Europe
What are JERA’s ambitions in LNG distribution and in small-scale LNG – which markets do you expect to target?
Regarding LNG distribution, LNG demand in Japan may fluctuate widely. However, it is very important for our bargaining power to maintain our position as the world’s biggest buyer of LNG.
We will strengthen our LNG trading to maintain the procurement volume of LNG while responding flexibly to demand fluctuations. We are steadily implementing IT systems and organising the contracts that have no destination restrictions.
As for small-scale LNG, we are considering ways to meet the needs of LNG buyers by being an aggregator of LNG procurement.
Do you have plans to invest in infrastructure, whether in smaller LNG ships or terminals, or to support growth in small-scale LNG shipping?
JERA is involved in the entire value chain, from upstream through downstream to power generation. If a small-scale LNG project fits into our strategy, we will consider investing in it.
What projects and supply/distribution agreements has JERA concluded so far?
Since it was established in 2015, JERA has entered into LNG sales agreements with Shizuoka Gas, EDF Trading and Centrica. On the coal-trading side, we have entered into an agreement with EDF Trading for JERA Trading to acquire its coal and freight business.
In domestic electricity generation, our generation capacity by fuel type for LNG is approximately 4,290 MW and for coal approximately 1,300 MW.
Since concluding our memorandum of understanding with Pavilion Gas in October 2015, we have held wide-ranging discussions on plans that will benefit both of us.
Finally, what role will JERA play in reshaping the global LNG landscape?
We would like to lead the industry towards the change in the Asian LNG market. We will support projects that contribute to change in the Asian LNG market by long-term contract and/or upstream investment.
We will introduce an Asian LNG index, not only for spot transactions but for term contracts.
We plan to lower the proportion of long-term contracts and increase the proportion of short-term and spot transactions. Above all, we will strengthen our trading business to flexibly respond to fluctuations in demand.
JERA in figures
|Key officials||President Yuji Kakimi|
|Chairman Hendrik Gordenker|
|Paid-in capital||¥5 billion|
|Shareholders||Tokyo Electric Power Co (Tepco) Fuel & Power, 50%|
|Chubu Electric Power, 50%|
|Shipping unit||LNG Marine Transport Co|
|Fleet, Jan 2016||6|
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