Japanese electric concerns shorten LNG contracts

Japan's third largest electric utility, Tohoku Electric Power Co., says it will renew its expiring LNG import contract with Indonesia's Pertamina this summer for just 5 years, and that it could stop importing LNG from Indonesia altogether in 2009.


TOKYO�Japan's third largest electric utility, Tohoku Electric Power Co., says it will renew its expiring LNG import contract with Indonesia's Pertamina this summer for just 5 years, and that it could stop importing LNG from Indonesia altogether in 2009.

The country's largest utility, Tokyo Electric Power Co., has refused to comment on reports that it plans a similar move. The two companies' current LNG contracts, which took effect in 1984, expire in December 2004.

Under the present 10-year and 21-year contracts, Tohoku Electric Power buys three million tonnes of LNG from the Indonesian state-owned oil and gas giant, while Tokyo Electric Power imports 510,000 tonnes/year of LNG.

Tohoku Electric Power says the expected exhaustion of Indonesia's gas field reserves accounts for its decision.

It is unusual for Japanese electric power companies to enter into short-term LNG contracts. Contracts of 20 years or longer are standard in the industry. But it has become increasingly clear that Indonesian gas fields will supply less LNG to Japanese utilities as their reserves dwindle.

"We have not completely ruled out importing LNG from Indonesia beyond 2009, but it all depends on the country developing new reserves," a Tohoku Electric Power official told OGJ Online. "In the meantime, we will also be looking at alternative LNG producers such as Malaysia, western Australia, and the Middle East."

But company officials add that the uncertainty of both future LNG supply and domestic electricity demand means that Tohoku Electric is unlikely to decide on alternative suppliers for the moment.

"I think that will only be decided in the next 3-4 years," an official said.

A number of new players are slated to enter the power supply market in the wake of the sector's deregulation in March. The impact these new players will have on the electric utilities will be dramatic.

Tokyo Electric Power, for example, has admitted its revenues could decline by as much as $75 million a year if just one-fifth of its industrial base chooses an alternative supplier.

More in LNG