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Japan’s Jera, EDF Discussing Global LNG Trading Collaboration

Japan’s Jera Co. Inc., the world’s largest liquefied natural gas (LNG) buyer, is in discussions with EDF SA to give the Asian buyer a bigger foothold in European gas markets and potentially expand U.S. trading.

Jera Trading International Ptd. Ltd. (Jerat), a joint venture between Japanese electric companies, Tepco Fuel & Power Inc. and Chubu Electric Power Co., signed the nonbinding agreement with EDF Trading Ltd. (EDFT). EDFT already holds one-third ownership of Jerat.

Also under discussion is a collaboration regarding Freeport LNG Development Co., which has an export terminal underway on the Gulf Coast. Freeport in July filed with the Federal Energy Regulatory Commission to launch its fourth liquefaction train.

At mid-year, about 13.4 million metric tons/year (mmty) of capacity from the first three trains had been contracted with Jera Energy America LLC, Osaka Gas Co. Ltd., BP Energy Co., Toshiba Corp. and SK E&S LNG LLC.

The Jera-EDFT partnership, once formalized, initially would center around Japan’s gas needs. The country’s total gas imports in 2016 were estimated at around 83 mmt. EDFT most recently was estimated to be trading 3-5 mmty, while Jera’s annual intake is about 35 mmty.

“We were not looking for a partner that has large volumes, but a partner that has the know-how and experience to carry out various trading operations,” said Jera’s Izumi Kai, general manager of the trading business development unit.

“There is too big an uncertainty in LNG demand for us to be able to adjust only through flexibility in existing contracts, and we would like to respond well to the challenge through the deal with EDFT.”

Japanese LNG demand has become “increasingly variable” in part on uncertainty around nuclear plant startups, and it is “difficult to predict and the ramp-up in U.S. LNG liquefaction,” according to Jera officials. “Europe has become a key balancing market for excess global LNG.

“As a result, Jera and EDFT believe that there is significant room for optimizing LNG on a global basis, establishing a more liquid market, and over time developing a clear pricing signal for LNG in Asia.”

Jera has been working to develop flexible LNG supply sources, while EDFT’s third party LNG trading business is considered one of the largest in the marketplace. Last year Jera completed a sales and purchase agreement with EDFT for 2.5 years to offload about 1.5 mmty that is to begin in June.

“By bringing together their resources, the parties will be in a better position to respond to uncertainties of LNG demand in Japan and Europe and supply Jera and EDF’s wider global portfolio, to optimize their operations and improve the competitiveness of LNG in the market, as well as supporting the development of deeper, more liquid LNG markets,” Jera officials said.

Once binding agreements are completed, the partners would combine their LNG trading units through Jerat, which could become one of the largest utility-owned seaborne energy optimizers in the world, with a toehold in LNG, coal and freight markets that span Asia, the Pacific and Atlantic basins.

According to Jera, around 300 people would be involved in the LNG optimization activities with offices in Japan, Singapore, the UK, the United States and the Netherlands.

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