Tokyo Electric Power Co. (Tepco) and Chubu Electric Power Co. have signed a memorandum of understanding on the formation of an alliance covering the entire energy supply chain, from upstream investments and fuel procurement through power generation. It would, among other things, create the world’s largest buyer of liquefied natural gas (LNG).

Tepco and Chubu said they will immediately begin negotiating the details of the 50-50 joint venture (JV), aiming to conclude a final agreement and to establish a legal entity by March 2015.

The agreement reflects Japan’s search for natural gas to fuel its power sector as the county has turned away from nuclear power following the 2011 Fukushima Daiichi nuclear power plant disaster (see Daily GPI, March 15, 2011).

“In taking responsibility for the nuclear disaster at its Fukushima Daiichi Nuclear Power Station, Tepco made the decision to transform its business to maintain a balance of ‘responsibility and competitiveness’ in its new Comprehensive Special Business Plan authorized in January this year,” Tepco said Tuesday. “As part of this transformation, Tepco intends to form the alliance and thereby increase the enterprise value of the Tepco Group as a whole.”

The alliance will focus on “fuel procurement and related business operations (including upstream investments, fuel transportation, and trading), as well as new thermal power plant construction and thermal power plant replacement, overseas power generation and energy infrastructure operations,” the companies said. It will be underpinned “by the world’s largest LNG procurement scale of 35 million to 40 million tons annually, establishing a fuel procurement portfolio that is outstanding in terms of economy, stability and flexibility.”

Last month, Tepco agreed to buy up to 1.2 million tons of LNG per year over 17 years from BP Singapore Pte. starting in April 2017 (see Daily GPI, Sept. 12). The LNG is to come from “multiple sources” held by BP Group, making the deal a “portfolio contract,” the first long-term agreement of its kind for Tepco, the Japanese utility company said.

Earlier this year, Chubu and Osaka Gas Co. Ltd. agreed to put up $1.2 billion of equity funding for Freeport LNG Expansion LP’s liquefaction and loading facility on Quintana Island near Freeport, TX (see Daily GPI,Feb. 28). Both companies previously signed tolling agreements with Freeport.

The natural gas supply deficit in Japan grew at an annualized trend-line rate of 4.8% between 1980 and 2012, but that deficit spiked in 2011 following the Fukushima nuclear disaster. By the year-end 2013, all nuclear facilities in Japan were out of commission.