Two of the leading natural gas buyers in the world, EDF Trading Ltd. (EDFT) and Jera Co. Inc., on Tuesday agreed to combine their worldwide trading activities to optimize liquefied natural gas (LNG) marketing.
Discussions for the partnership, to be named Jera Trading Ptd. Ltd. (Jerat), have been underway since last year. If all goes to plan, the transaction is expected to be completed by early 2019.
“With demand for LNG in Japan becoming increasingly variable and difficult to predict and the ramp up in U.S. LNG liquefaction, Europe has become a key balancing market for excess global LNG,” the partners said.
The management teams “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 and EDFT already have significant positions in the LNG market, with the new business designed to provide more resources, including risk management capabilities, to “better position Jerat to respond to the uncertainties of LNG demand in Japan and Europe.”
Jera, itself a joint venture (JV) between Japanese electric companies Tepco Fuel & Power Inc. and Chubu Electric Power Co., “has been focusing on developing flexible LNG supply sources as flexible procurement is more important than ever before due to the large scale introduction of renewable power generation globally.”
EDF SA subsidiary EDFT has a third-party LNG trading business and access to the European LNG and gas markets that enable LNG unloading, reloading and storage in-tank. It also is one of the largest financial traders via the Japan Korea Marker, aka JKM, in the market.
Jera would hold two-thirds equity in the JV, while EDFT would have the remaining equity.
The partners would have joint responsibility and control in managing the new and expanded business. Each would have two executive directors, with the CEO appointed by Jera.
Jerat would become the exclusive LNG optimizer for Jera and EDF and manage their collective short- and medium-term activity.
“LNG remains a strategically important fuel for Jera and EDF, and this agreement will bring more flexibility and scale to both partners without affecting Jera’s and EDF’s long term procurement activities,” executives said.
With around 300 people and offices in Japan, Singapore, the UK, the United States and the Netherlands, Jerat is expected to become one of the largest utility-owned seaborne energy optimizers, spanning Asia, the Pacific and the Atlantic basins.
As part of this transaction, EDF Trading North America would be responsible for supplying electricity and natural gas to meet Jera’s capacity requirements at the Freeport LNG liquefaction terminal underway on the Texas coast. EDFT in Europe would become the exclusive market interface for Jerat with respect to the European gas markets.
To recognize the expansion of Jerat’s business, the partners also agreed to change the name of Jera Trading to Jera Global Markets.
“We look forward, through Jera Global Markets, to optimizing our global LNG portfolio with more flexible LNG sources and associated shipping positions amid the uncertainties of LNG demand in Japan and global LNG market developments,” said Jera President Yuji Kakimi.
Added EDFT CEO John Rittenhouse, “LNG is an important fuel for EDF and this joint venture will combine EDFT’s wholesale market optimization capabilities with Jera’s offtake volumes. This is another important step in our relationship with Jera, which started in 2005 and has significantly grown over the years.”