Japanese trading giants Sojitz Corporation and Sumitomo Corporation began operating as separate entities in the spot LNG market on Wednesday, leaving their 50:50 joint venture LNG Japan to concentrate on upstream assets and long-term LNG contracts, trading sources said Thursday.
The entire 10-member trading team from LNG Japan has moved to Sojitz, market sources said.
"The team is currently settling down in its new environment and will start trading spot LNG cargoes for Sojitz soon," a source close to the trading company said.
Sumitomo Corporation, meanwhile, has started trading with April-delivered cargoes, a source close to Sumitomo said Wednesday.
LNG spot cargoes are typically bought four to six weeks before the date of physical delivery as transporting a cargo could require more than 30 days for certain shipping routes.
Japan's utilities have sufficient inventory to see them through the rest of winter -- which typically ends in March -- but have started expressing interest in buying April-delivery cargoes.
Sumitomo and Sojitz are two of Japan's seven largest general trading companies, or sogo shosha. Four of the sogo shosha -- Mitsubishi, Mitsui, Itochu and Marubeni -- are actively involved in spot LNG trading, while Toyota Tsusho has not entered Japan's spot LNG market.
One LNG analyst was surprised at Sumitomo and Sojitz's decision to go into the spot LNG market alone given that the market is expected to have fewer opportunities for the next three to four years.
"The spot market is going to be smaller and there will be fewer opportunities for spot trades," Tony Regan, principal consultant at Tri-Zen International, said.
"For the next three to four years, there will be fewer LNG cargoes flowing into the spot market. The market is very tight and there is very little capacity that could be offered in the spot market. Also, Japanese and Korean companies are opting more for term contracts," he said.
Regan noted that LNG Japan had done only two spot deals last year, so it was not big in the spot market and the latest development might be just a "token change."
In January last year, Sumitomo signed a memorandum of understanding with US' Cheniere Energy that could lead to the Japanese company contracting for up to 1.5 million mt/year of processing capacity at American company's Sabine Pass LNG terminal in Louisiana.
"Perhaps Sumitomo was keen to access US LNG, while Sojitz might be less keen," Regan said, suggesting that this might be a possible reason for the split.
LNG Japan has a 7.35% stake in Indonesia's 7.6 million mt/year Tangguh facility and a 3% share in RasGas' 6 million mt/year Ras Laffan liquefaction project in Qatar. The company also has a 4.375% share in the Sanga Sanga oil, gas and coalbed methane block in East Kalimantan, Indonesia.
