Japan's Osaka Gas and Chubu Electric expect to import LNG from the US Freeport project at Henry Hub-linked gas prices, senior officials from the two companies said Tuesday.
"We are hoping to add a new page in our history of procurements with the introduction of the Henry Hub gas price linkage," Hiroki Sato, Chubu Electric's general manager of fuels department and head of LNG business, told a press briefing in Tokyo.
"This is a consequence of coordinated efforts by the end-users that are willing to make a change in the pricing system [for their LNG] from the buyer side," Sato said.
It would be the first instance of Chubu Electric and Osaka Gas using Henry Hub as the main benchmarks for their LNG, the officials said.
The companies earlier Tuesday concluded a natural gas liquefaction tolling agreement with the Freeport project to secure 2.20 million mt/year of capacity each to liquefy natural gas from its proposed project in Texas, the Japanese utilities said.
Under its gas liquefaction agreement with FLNG Liquefaction, a wholly owned subsidiary of Freeport LNG Development, Osaka Gas and Chubu Electric will secure a combined 4.40 million mt/year of LNG capacity from the first train of the proposed project.
They added that Freeport LNG will have no destination clause that can be sold on an FOB basis. The officials added that they have enough capacity to import up to 4.40 million mt/year of lean-gas-based LNG from the US.
Kei Takeuchi, senior general manager of Osaka Gas' LNG trading department, did not rule out the possibility of selling Freeport LNG for its trading, depending on its demand and supply situations for its city gas supply and power generation businesses.
Sato, meanwhile, stressed that Chubu Electric's portion of Freeport LNG would mainly be used for its own consumption as a priority.
The utilities expect to start importing Freeport LNG from as early as late 2017 once the project secures approval from the US Department of Energy, Takeuchi, told the briefing.
Freeport still requires a green light from the DOE to export LNG to Japan or other nations that have not yet ratified a free trade agreement with Washington.
Freeport LNG projects has filed an application to export LNG from its existing import terminal in Texas, which is planned to have three LNG trains with a capacity of 4.40 million mt/year each. The Freeport liquefaction project is planned to startup in 2017.
Osaka Gas and Chubu Electric's deal is the latest effort by Japanese companies that are entering North American projects for alternative supplies in the hope of securing Henry Hub gas prices.
LNG imports from the Middle East, which are linked to crude oil prices, are far more expensive than those from the US, where Henry Hub prices recently fell to 10-year lows and are currently at a fraction of oil-linked LNG prices.
Japanese companies have secured options to import up to 15 million mt/year of LNG from North America which could start from as early as 2016, although formal contracts have yet to be finalized, the Japanese government said June 27.
The government then did not provide a breakdown of the possible 15 million mt/year LNG imports from North America, which would account for roughly 20% of the country's current import volumes.
