Tokyo Electric Power Co. (TEPCO) is about to strike its first-ever long-term contract for liquefied natural gas (LNG) supply indexed to the Henry Hub, the Japanese utility said Wednesday. TEPCO has been in talks with Mitsui & Co. Ltd. and Mitsubishi Corp. to acquire LNG from Sempra Energy’s Cameron LNG terminal in Louisiana.

“…[W]e will be purchasing an annual amount of approximately 800,000 tons and an optional amount (under discussion) of LNG starting from 2017 for the period of about 20 years,” TEPCO said. “The natural gas-linked price (Henry Hub-linked price) is planned to be applied to the price index for the first time in a TEPCO long-term LNG contract.”

Mitsui and Mitsubishi have been in talks with Cameron LNG about a tolling agreement at the LNG facility that would rely on U.S. shale gas for supply, TEPCO said. “Once the final sales contract is concluded between TEPCO, Mitsui & Co. Ltd. and Mitsubishi Corp., it will significantly contribute to our stable procurement of LNG,” TEPCO said.

Japan and other Asian consumers of LNG have traditionally bought the fuel under long-term contracts with prices indexed to those of oil. However, buyers have been growing increasingly dissatisfied with the high prices they’ve been paying for supply when natural gas is cheap in North America (see Daily GPI, Oct. 11, 2012). The pushback to oil-indexed pricing has been seen as a threat to at least some North American projects that would export LNG to Asia (see Daily GPI, Jan. 23; Oct. 31, 2012).

Last December Total Gas & Power North America Inc. agreed to buy LNG at Cheniere Energy’s Sabine Pass Liquefaction LLC project in Louisiana at a Henry Hub-indexed price (see Daily GPI, Dec. 18, 2012). The project is backed by investors from China and Singapore (see Daily GPI, Aug. 23, 2012).

TEPCO has been in pursuit of LNG to fuel gas-fired power plants following the March 2011 meltdown at its Fukushima Daiichi nuclear power plant (see Daily GPI, Sept. 20, 2012; March 14, 2011). TEPCO last November developed a plan to procure “a significant amount of lean LNG,” including supplies from the United States, which are expected to comprise about half of the total procured, which is expected to be 10 million tons/year.

“In addition to approximately 800,000 tons (annual) of lean LNG to be purchased from the Cameron Project, approximately 1.2 million tons (annual) will be committed through purchases from multiple sources, which will be a total of 2 million tons (annual) of lean LNG to be secured. We consider this as the first step towards achieving the target of 10 million tons (annual) of lean LNG,” TEPCO said.

The utility said it would be reviewing the operation of its LNG receiving terminals and making modifications “in order to achieve more flexible and stable operations of lean LNG procurement” while diversifying LNG supply sources. TEPCO defines “lean LNG” as that with a “lower calorific value” than conventional LNG.

Last December, San Diego-based Sempra Energy filed with FERC for approval to construct liquefaction and export facilities at its Cameron import terminal in Hackberry, LA. Cameron is one of only three of numerous export projects that have made a formal certificate filing at the Federal Energy Regulatory Commission.

Japan has been an LNG customer of the United States for decades, taking cargoes exported from the country’s only export terminal on Alaska’s Kenai Peninsula (see Daily GPI, Aug. 21, 2012).

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