Tokyo Gas Co. Ltd. said Friday it has clinched a heads of agreement (HOA) for liquefied natural gas (LNG) supply with a unit of Royal Dutch Shell plc that would use a unique pricing formula based on coal indexation.
The agreement, said to be the first of its kind linking global gas supply to coal prices, is between one of Japan’s largest gas utilities and Shell Eastern Trading (Pte) Ltd. The parties have been in joint discussions on the new type of agreement “that can contribute to creating LNG demand,” Tokyo Gas said.
The 10-year contract is to begin in April 2020, with Shell supplying about 500,000 metric tons/year of gas.
Under the agreement, Shell would supply gas from the supermajor’s global gas portfolio, rather than from specific LNG projects, allowing Tokyo Gas to secure a long-term, competitive supply.
Shell Executive Vice President Steve Hill called the HOA an “innovative solution” for Tokyo Gas. “Our broad portfolio enables us to provide reliable LNG supply as well as tailored solutions including flexible contract terms under a variety of pricing indices.”
Shell is the largest private LNG provider in the world, with a plethora of projects around the globe, including LNG Canada now underway in British Columbia, which it is spearheading with Asian partners. Shell also has multiple takeaway contracts with Gulf Coast LNG projects.
Tokyo Gas received Japan’s first-ever LNG cargo in November 1969, and this year marks the 50th anniversary. Among its many import contracts, the utility last fall was part of an HOA with Sempra Energy subsidiaries to take capacity from Phase 1 of the proposed Energia Costa Azul project in Baja California, Mexico.
In February, Tokyo Gas was part of a joint sales and purchase agreement to purchase 2.6 million metric tons/year (mmty) of gas, from the startup of production until the “early 2040s,” from an Anadarko Petroleum Corp.-led Mozambique LNG export project. That project is awaiting sanctioning.
“With our long-term relationship and joint consideration, we were able to achieve an innovative agreement that would enhance further diversification of price indexation pursued by Tokyo Gas,” Managing Executive Officer Kentaro Kimoto said. “We will continue to tackle new challenges that would contribute to the development of LNG industry.”
Uncontracted demand by the world's seven largest LNG buyers -- all based in the Asia Pacific -- may quadruple to 80 mmty by 2030, according to a recent analysis by Wood Mackenzie. The seven buyers, which together account for more than half of the global gas export market, are China National Offshore Oil Corp., aka CNOOC, CPC Corp., Japan’s JERA Corp. Inc., Korea Gas Co., PetroChina Co. Ltd., China Petroleum & Chemical Corp., aka Sinopec, and Tokyo Gas.