(Bloomberg) -- Japan’s liquefied natural gas buyers — among the world’s biggest — are struggling to ensure supply contracts are flexible enough, and need the government to help negotiate better terms, according to the head of an industry lobby group.
So-called destination clauses that limit the on-selling of shipments make it harder for companies to commit to decades-long contracts considering uncertainty about future demand, Japan Gas Association Chairman Takashi Uchida said in an interview on Monday. Such restrictions are common in contracts with Qatar’s state-owned producer, among others, who don’t want resold gas damping demand in other markets.
“We’ve been asking the government to help with making contracts destination clause-free,” said Uchida, who is also chairman of Tokyo Gas Co. The private sector alone can’t secure flexible agreements, he said.
Japanese utilities have been reluctant to sign new contracts with Qatar, which has an ambitious plan to ramp up LNG production and ensure it remains a major force in the global market. Recent buyers from the Middle Eastern producer — including TotalEnergies SE and Germany — have hinted that there may be some flexibility in those terms as they seek to limit the use of fossil fuels to meet climate targets.
Japan is a significant force in the global LNG trade, and its power and gas utilities have secured more supply from Australia and the US — which vie with Qatar as the world’s biggest shipper of the superchilled fuel. Both Jera Co. and Tokyo Gas didn’t renew contracts with Qatar when they expired in 2021.
Currently, Japan uses about two-thirds of the LNG it buys and resells the remaining third abroad. However, about 40% of its long-term contracts are expected to still have destination clauses in 2030, according to an analysis conducted by Japan Organization for Metals and Energy Security.
The Asian nation currently gets about 70% of its electricity from fossil fuels including natural gas and coal and is in the process of reviewing its strategic energy plan, which could dictate the power mix beyond 2030. Despite a shrinking population, there are forecasts that artificial intelligence and data centers may boost electricity use.
“It will be difficult to power data centers with renewables,” Uchida said, adding that LNG-fired power is at the moment the most realistic solution to providing stable electricity for energy-hungry facilities.
The International Group of LNG Importers, known by its French acronym GIIGNL, is slated to highlight the future need for the fuel for energy security, transport and back-up for renewable power when it holds its annual general assembly in Hiroshima from Sunday. The importance of LNG came to the fore in 2022, said Uchida, who is the group’s vice president for Asia, when European buyers scrambled to replace Russian pipeline gas following Moscow’s invasion of Ukraine.
“Just two, three years ago, LNG was called a stranded asset — it’s now considered an important energy source,” Uchida said.
(Updates the story with upcoming GIIGNL meeting in final two paragraphs)
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