Tokyo Electric Power Company Sources LNG from Sempra Subsidiary

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Researched by Industrial Info Resources (Sugar Land, Texas)--Following the earthquake, tsunami, and nuclear disaster on March 11, 2011, Japan, the largest importer of liquefied natural gas (LNG) in the world, has been increasing and diversifying its LNG supply base.

Tokyo Electric Power Company Incorporated (TYO:9501) (Tokyo) (TEPCO) has traditionally sourced its LNG from Qatar. However, TEPCO recently signed long-term lean LNG supply contracts with Mitsui & Company Limited (TYO:8031) (Tokyo) and Mitsubishi Corporation (TYO:8058) (Tokyo). Both of these suppliers are buying their LNG from the planned Cameron LNG liquefaction plant in Louisiana, owned and operated by a subsidiary of Sempra Energy (NYSE:SRE) (San Diego).

The supply contracts with both companies are for 20 years, starting when the Cameron facility comes online in late 2017. The contracts each amount to 4 million tons per year, for a total of 8 million tons per year at a unit price tied to the Henry Hub index. The difference between LNG prices per million British thermal units in Japan and the U.S. is roughly $14; thus, it is possible for TEPCO to save a significant amount of money on fuel by importing from the U.S. This contract marks the first Henry Hub price supplier for TEPCO, which typically sources its LNG through QatarGas, a joint venture company under the state-owned Qatar Petroleum Company with Mitsui as one of its major shareholders.

Mitsubishi is also involved with a potential supplier for TEPCO, LNG Canada, a joint venture project in western British Columbia. The project is still in its infancy, but is expected to have two trains capable of liquefying up to 12 million tons per annum of LNG upon completion in 2020. The project is headed by Shell Canada Limited, a subsidiary of Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands).

In addition to the Cameron LNG project, TEPCO also has looked to Australia, specifically the Icthys project off the Australian coast under INPEX Corporation (TYO:1605) (Tokyo). The agreement with INPEX gives TEPCO access to another 1.05 million tons per annum of LNG in a market where natural gas prices hover around $10 per million British thermal units for 15 years starting in 2016. These projects together form the first steps to TEPCO achieving its stated goal of securing 10 million tons per annum of LNG.

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