Japan's Chubu Electric Negotiates with Long-Term LNG Suppliers

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Researched by Industrial Info Resources (Sugar Land, Texas)--Japan is the world's largest importer of liquefied natural gas (LNG). There are 10 regional monopoly power companies, and each owns and operates power stations that use LNG for fuel. Nine of the 10 power companies also own and operate nuclear power stations, or they did until the Great East Japan Earthquake of March 2011. The earthquake and the ensuing nuclear disaster at Tokyo Electric Power Company Incorporated's (Tokyo) (TEPCO) Fukushima Daiichi nuclear power station caused a plethora of new regulations and hurdles for nuclear reactors to clear before being restarted. As it stands, only two of Japan's 54 nuclear reactors have been approved for restart, increasing both Japan's reliance on LNG and the country's need for a stable supply of it.

In the first half of the 2012 fiscal year, Japan spent more than 3 trillion yen, or more than $37 billion, on LNG imports. That figure is a 74% increase from import levels in 2010. This increased reliance on foreign-sourced LNG is seen by many as a hemorrhaging of money out of Japan. However, the Japanese government has forecast that in order for thermal power plants, such as LNG-fueled ones, to continue to compensate for the lost capacity of the nuclear reactors, the LNG bill could run as high as 13 trillion yen by 2015, and 24 trillion yen by 2020.

Chubu Electric Power Company Incorporated (Nagoya, Japan) (Chuden) is one of the 10 regional power monopolies in Japan. Its nuclear power station at Hamaoka is set to begin construction on new safety infrastructure late next year. This past year, Chuden consumed 13 million metric tons of LNG, and expects to consume roughly the same next year, perhaps more. As such, Chuden intends to maintain all of its long-term supply agreements and to begin another. The new agreement with Qatar will supply Chuden with 1 million metric tons of LNG per year, starting in 2013 and going through 2018, then 700,000 metric tons per year through 2028. In doing so, it is estimated that roughly 60% of Chuden's LNG will be supplied through long-term contracts such as this one, with the remaining 40% supplied through short-term contracts and spot purchases.

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