Biggest LNG Buyer Turning Seller as Reload Terminal to Start (1)

A facility on Japan’s Pacific coast will be ready next month to ship liquefied natural gas abroad, as a global glut turns the world’s biggest buyer into a seller of the fuel.

Shizuoka Gas Co. plans to complete a reloading facility at its Sodeshi terminal in April, Hirotaka Kaneda, deputy general manager at the utility’s feedstock department, said in an interview. The company, which purchases about 1 million metric tons a year of LNG and distributes city gas to about 300,000 customers in a prefecture southwest of Mt. Fuji, plans to resell as many two cargoes a year to neighboring Asian countries such as China and South Korea, he said.

The Sodeshi terminal would be the first Japanese facility to be regularly used to resell cargoes and its impending start is evidence of how a global glut of the fuel is reshaping the LNG market. While bigger buyers such as Jera Co. and Korea Gas Corp. are banding together to demand more say in negotiations with their suppliers amid a wave of new projects from Australia to the U.S., smaller companies such as Shizuoka Gas are seeking to take advantage of abundant gas by building reloading facilities.

Sakai Terminal

“Historically, the utilities haven’t really had to think a whole lot about new growth opportunities and new ways to optimize fuel and power,” Michael Jones, a Singapore-based gas and power analyst at Wood Mackenzie Ltd., said by phone. “Having that reloading option is just one way to become more flexible in this changing market.”

Currently, only Kansai Electric Power Co. has an LNG reloading facility in Japan, Kaneda said. The second-biggest electricity company in Japan reloaded an LNG cargo at its Sakai terminal in May 2008 after completing the project in January 2007, a Kansai Electric spokesman said, asking not to be identified because of internal policy. The official declined to give more details on the buyer of the cargo and why the facility hasn’t been used since then.

“There is no point for major companies to do the reloading business,” Kaneda said. “As their procurement volumes are big, reloading one or two cargoes doesn’t help cut their average costs much.” For a smaller utility such as Shizuoka Gas, which bought 17 cargoes of LNG last year, the strategy could significantly cut average prices, he said.

LNG Surplus

Several utilities and traders have visited Shizuoka Gas’s LNG reloading facility because of the expected LNG surplus in Japan, Kaneda said, declining to identify the companies. Apart from helping resell surplus supplies, the reloading facility would allow utilities to lower costs if they buy spot cargoes when prices are cheap and seek to ship them elsewhere when LNG recovers, he said.

Japan will have a surplus of 12.2 billion cubic meters of LNG in 2017, 8.1 billion in 2018 and 8.6 billion in 2019, according to a February report from BMI Research. Imports are forecast to decline 10.7 percent to 104.8 billion cubic meters by 2025 from 117.3 billion in 2015.

LNG for delivery to Northeast Asia in 1 to 2 months dropped to $4.35 per million British thermal unit at the end of last month, extending its tumble from a high of $19.70 in February 2014, according to New York-based Energy Intelligence Group.

(Updates with analyst comment in fourth paragraph.)

--With assistance from Stephen Stapczynski To contact the reporter on this story: Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net. To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net, Aaron Clark, Abhay Singh

By: Tsuyoshi Inajima

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