The world’s largest buyer of LNG has vowed to transform itself into a global trading powerhouse as it moves to defend its position as the biggest purchaser of the super-cooled fuel.
Hiroki Sato, known in the industry as “Mr. LNG” for his clout as chief buyer for Jera, said the big Japanese energy importer would focus on investments in trading, infrastructure and gas production overseas, as it prepares for LNG imports in the country to decline.
“The plan is to become a portfolio player like BP and Total,” Sato told the Financial Times Commodities Tokyo Summit. “We are ready to invest upstream.”
Jera, a joint venture launched in 2015 between Chubu Electric Power and Tokyo Electric Power to procure fuel supplies, is the world’s biggest buyer of LNG, giving it significant sway over markets. But the Japanese government’s Ministry of Economy, Trade and Industry agency has laid out targets that would see LNG imports decline in the coming decade, as they boost supplies from renewables and bring back nuclear power plants closed after the Fukushima disaster.
“We will lose our No. 1 position if we reduce volumes,” said Sato. “I don’t like that. [Being] No. 1 is very important.”
Sato, who appeared on a panel alongside David Knipe, BP’s global head of gas, and Jean-Pierre Mateille, Total’s head of gas and power trading, said the world’s biggest LNG suppliers should not expect Jera’s purchases to slow.
The company has been pushing to end so-called “destination clauses” that restrict the resale of LNG supplies to third parties, with global supplies set to rise rapidly in the coming years due to rising exports from the U.S. and Australia. Sato said the company wanted the option of selling on to other companies and countries as it sought to maintain its power in the market.
Jera buys about 35m tonnes of LNG a year, or almost 15% of global supplies. A comparable percentage in the oil market would see one company buying the entirety of Saudi Arabia and Iraq’s crude oil output.
The LNG market, which was founded on long-term contracts lasting as long as 20 years with prices linked to crude, has been shifting increasingly toward a spot market with more short-term trades being done.
Trading houses such as Trafigura, Glencore, Gunvor and Vitol have also been expanding their LNG operations, seeing the opportunity to develop the market more closely along the lines of oil trading.
In the next three years Jera has long-term contracts expiring with Malaysia, Abu Dhabi and Qatar, totalling about 12m tonnes of annual supply.
Sato said as well as expanding its trading it wanted to invest in the “full-value chain business” including production assets and infrastructure, potentially in the U.S. shale sector.
“We try to expand our business territory from upstream to downstream—in [the] case of upstream we are ready to invest,” Sato said. “I never deny we are interested in U.S. shale gas, or African upstream. It depends on the cases.”
BP’s Knipe said a growing glut of LNG in the market meant any investments needed to be focused on the lowest-cost producing regions to be competitive, singling out the U.S. Gulf Coast where exports were intensifying, while the shale boom has lowered prices.
“We live in a world that is about to go into oversupply and will be in oversupply for a number of years,” Knipe said.
“If you are going to invest in new liquefaction you need to have a project that will be cost competitive with the most cost-competitive projects on the planet and it’s hard to avoid looking at the US Gulf Coast.”