Japanese utility Osaka Gas sees the government's plan to fully liberalise the country's retail power market possibly leading to increased LNG spot purchases as the country's utilities seek lower fuel generation costs.
Osaka Gas Australia chairman Shigeki Hirano told the Australian Gas Export Outlook 2014 conference in Brisbane today that the liberalisation of the Japanese power market by 2018 will give utilities more flexibility in their fuel purchases. The increased competition in the retail power sector should help drive down wholesale costs through improved efficiencies in fuel purchases, he said. Spot trade accounted for about 65mn t last year, or 27pc of total global LNG trade, Hirano said.
Osaka Gas has already taken steps to diversify its LNG supply sources, which also exposes it to different influences on LNG prices, Hirano said. It bought in February a 25pc stake in the 4.4mn t/yr Freeport LNG export project in Texas. The LNG offtake agreements from Freeport will be based on US Henry Hub pricing, Hirano said, as opposed to its existing imports mainly from the Middle East and Asia-Pacific where prices are referenced to the oil-linked Japanese Crude Cocktail.
Osaka Gas will start receiving contractual shipments from July from the start-up of the 6.9mn t/yr PNG LNG project in Papua New Guinea (PNG) operated by ExxonMobil. Osaka has an offtake agreement with PNG LNG to buy 1.5mn t/yr.
It is important for Japanese energy buyers to reduce costs as high energy costs were accelerating the shift of manufacturing plants offshore, Hirano said. These higher energy costs are partly because of the shutdown of Japan's nuclear power generation capacity following the Fukushima nuclear disaster in March 2011.
Japan's LNG import volumes rose by 24pc last year and helped contribute to the country's trade deficit of ¥13.8 trillion, ($135bn), the highest since the oil price shock affected the country in 1979 in the wake of Iran's revolution.
km/rjd
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