Osaka Gas forecasts profits despite Freeport LNG loss

Japanese gas retailer Osaka Gas is likely to turn a profit for the April 2022-March 2023 fiscal year, despite ballooning losses resulting from prolonged closure of the US' 15mn t/yr Freeport LNG export terminal in Texas.

Osaka Gas expects its LNG term supplies, which have become price competitive against spot prices this fiscal year, will help the company partially offset the impact from the Freeport outage.

Osaka Gas estimates that its Freeport-related losses will increase to ¥149.5bn ($1.1bn) for 2022-23, up from the previous outlook of ¥109.5bn in October 2022. The delay in exports from the Freeport terminal caused a loss of ¥125.8bn for April-December 2022.

Osaka Gas owns a 25pc stake in train 1 of the Freeport project, while undertaking to buy 2.32mn t/yr of LNG under a 20-year term contract across 2019-39. The company also has 10.8pc share of operator Freeport LNG Development.

The Freeport LNG terminal, which has been closed following a fire in June last year, has faced a series of delays in restart. The third 5mn t/yr liquefaction train finally restarted activities on 3 February, which will be followed by gradual restart of the second and first trains. But Osaka Gas will not import any Freeport LNG cargoes over the rest of this fiscal year to 31 March, the company said.

The lost Freeport LNG supplies have forced Osaka Gas to secure alternative cargoes, increasing costs and reducing profits. But loses attributed to the Freeport outage would be partly offset by profits through domestic city gas sales, supported by higher retail prices and relatively low costs of feedstock LNG.

Japan's domestic city gas prices track the country's overall import costs for LNG, including spot and term supplies, with a three-month time lag. This means city gas prices tend to rise when spot LNG prices are rising and the return from its sales would grow when term prices are kept lower than spot prices, subject to term volumes outstripping spot supplies.

Osaka Gas forecasts its profits for 2022-23 at ¥36bn, revised up from the previous outlook of ¥29bn but lower by 72pc from ¥130.4bn in 2021-22. Disposing off undisclosed cross-shareholdings will also enable the rise in profit, the company added.

Osaka Gas sold 4.93bn m³ of city gas over April-December 2022, down by 0.8pc from a year earlier. The company has maintained its city gas sales forecast for 2022-23 at 6.83bn m³, down by 3.6pc from a year earlier.

By Motoko Hasegawa