Japan to launch domestic gas futures market – source

The Tokyo Commodity Exchange (TOCOM) plans to open a domestic natural gas futures market in Japan, a source close to the exchange said.

The futures market would likely coincide with Japan’s liberalisation of its retail natural gas market, the source said, putting the opening past April 2017. The market would help companies entering the sector to compete against the more than 200 companies, including large regional suppliers such as Osaka Gas and Tokyo Gas.

Details on possible contract volumes and delivery periods are not yet known. TOCOM and the Japan OTC Exchange (JOE), a joint venture it runs with Tokyo-based fuel trader Ginga, are still in talks with domestic gas companies, the source said.

Japan imported about 85m tonnes of LNG last year, according to customs data. Importers have been resistant to allowing third parties access their LNG import terminals – a stipulation of the government’s liberalisation plan. Gas companies have also pushed back on the government’s desire for them to develop their pipeline networks to better connect the different regions in the country, arguing that funding methods are unclear and that better pipeline connectivity would invite newcomers to intrude on their traditional turf.

But some of the electricity companies rocked by the sector opening up earlier this year plan to claw back market share by starting natural gas retail ventures. Kansai Electric – Japan’s third largest electricity provider, which has lost 340,000 customers because of the electricity market liberalisation – announced on 13 September it would partner with a consortium of companies to start selling gas into the retail market starting in April 2017. The group aims to sell gas to 200,000 customers within its first year, Kansai Electric said in a statement.

Japan opened up its electricity market to new competition earlier this year, resulting in a flood of new companies selling electricity against Tokyo Electric and Kansai Electric, among others. Nearly a million customers have switched from Tokyo Electric to another electricity provider as of 31 August, according to the latest government data.

TOCOM has been developing possible electricity futures contracts for trade on the JOE to help electricity providers buy and sell power. TOCOM had hoped to introduce the electricity futures contracts in the second half of 2016. But the rollout was first pushed back to April 2017 and has now been further postponed to the second half of next year, as the exchange continues discussing what form the contracts may take with potential trading parties, a source said.

Currently, plans centre on contracts with quarterly contract lengths, although this is subject to change, the source said. ben.lefebvre@icis.com