Compared to what the EU accomplished in the early 2000s, the Japan Fair Trade Commission (JFTC) is taking a softer approach to rid Japan of destination clauses in long-term LNG contracts between suppliers and Japanese buyers.
The approach by the JFTC is also largely in line with what industry observers expected.
Through findings of its first investigation into the matter, Shinji Kakiuchi, a director at the JFTC said on 28 June that LNG sellers should not include competition-restraining clauses when negotiating new contracts.
The JFTC also said that LNG sellers should review and relax similar restrictive clauses in existing LNG contracts.
Although a step in the right direction to determine if destination clauses are in violation of the Antimonopoly Act, suggesting LNG sellers merely should relax rhetoric in destination clauses falls short of measures taken by the European Commission in the early 2000s which effectively forced out destination restrictions in existing contracts.
In that case the EU worked with LNG suppliers such as Algeria’s Sonatrach with the result that profit-sharing mechanisms were inserted into existing delivered ex ship (DES) contracts which meant buyers could nominate their cargoes to be sent to other markets.
In any case, Japan is unlikely to need new contractual LNG in the short term and is expected to be oversupplied as new contracts kick in. In this respect it is not clear how effective just focusing on new contracts will be.
Japan has 88m tonnes of contractual LNG in 2017 and just under 91m tonnes lined up for 2018, according to LNG Edge.
Significant new volume will be sourced from the US which will be on a destination-free, free-on-board basis.
The JFTC will continue to monitor the LNG market and take “strict actions” against any violations of the Antimonopoly Act. However, Kakiuchi did not extrapolate what type of strict actions would be taken.
The move could prove more significant if it is pushed hard on those contracts that are soon to expire and are up for renegotiation. Delivered contracts will expire from Malaysia LNG, Qatargas and the Australian North West Shelf project in the coming years, according to LNG Edge.
Japanese buyers have found themselves recently in a stronger negotiating position given the rise in global LNG production and with sellers such as Qatargas taking a more flexible approach in contract discussions to maintain market share.
Through its findings, the JFTC said that imposing destination restrictions to prevent Japanese end-users from reselling LNG is, in principle, in violation of the Antimonopoly Act.
“There need to be more ways for Japanese end-users to resell LNG beyond reload activities,” he said.
Kansai Electric Power and Shizuoka Gas are the only two companies in Japan that have reload facilities.
To date, only one sale by reload has taken place in Japan, that being a cargo sold by Shizuoka Gas to Shell Eastern Trading in February 2017. Resales of that nature for Japan, however, are typically cost prohibitive. email@example.com