Sumitomo and Tokyo Gas have concluded a natural gas liquefaction tolling agreement with Dominion Resources and signed heads of agreements to supply LNG from the US company's proposed Cove Point project in Maryland, the Japanese companies jointly said Monday.
As part of the deal, Pacific Summit Energy, a wholly owned subsidiary of Sumitomo, has signed a terminal service agreement with Dominion to carry out the liquefaction of around 2.3 million mt/year of natural gas at the terminal for export, the companies said.
Sumitomo and Tokyo Gas' latest agreement followed the utility and Japanese trading house Sumitomo signing an agreement with Dominion in April last year on "bi-directional LNG processing services" in connection with its project to construct a new LNG liquefaction plant at the existing Cove Point LNG import terminal, which is expected to have a capacity of 5 million mt/year.
Sumitomo on Monday also signed HOAs to supply 1.4 million mt/year of LNG to Tokyo Gas and 800,000 mt/year of LNG to Japan's Kansai Electric from the Cove Point project for 20 years -- beginning from the time the project is commissioned -- at US Henry Hub gas prices, company executives said at a press conference.
For Tokyo Gas' import of the Cove Point LNG, the utility has established a wholly owned subsidiary, TG PLUS Co., Ltd, which has signed the HOA with Sumitomo for the sales and purchase of 1.4 million mt/year of LNG, the companies said. It is expected that Tokyo Gas will be entering into a LNG sale and purchase agreement with TG PLUS to import LNG to Japan, they added.
Tokyo Gas' executive officer and senior general manager at gas resources department Kunio Nohata said: "We have established this company enabling us to increase a degree of freedom in selling LNG [to other markets] when the company cannot bring LNG to Japan." For Tokyo Gas it was part of its ongoing strategic efforts to increase its flexibility in procuring Cove Point LNG, which would not have any destination restrictions, he added.
In an interview with Platts in September 2012, Nohata said Tokyo Gas aimed to import "more or less than 1 million mt/year" out of the proposed 2.3 million mt/year of LNG from the Cove Point project. He added then that Tokyo Gas and Sumitomo are in talks with its prospective customers for marketing the remaining 1.3 million mt/year of Cove Point LNG.
A senior Kansai Electric executive, Naoto Matsumura, general manager for the company's Office of Fossil Fuel, told Platts in an interview on March 22 that the Osaka-based power utility was in talks the Cove Point project buy LNG as part of its increasing efforts to not only diversify their supply sources but also price benchmarks in a bid to cut import costs as well as enhance security of supply.
Sumitomo's global head and general manager of E&P and Natural Gas Business Group Kazuyuki Onose told Monday's press conference that with its expected LNG sales to Tokyo Gas and Kansai Electric, "almost all" Sumitomo's liquefaction volume from the Cove Point LNG had already been sold.
By around June, Sumitomo and Tokyo Gas now aim to conclude details on establishing a tolling agreement company, which would be jointly operated by the two companies, said Nohata, declining to elaborate.
Speaking to Platts on the sidelines of the press conference, Nohata said he understood that Dominion "is in the final stages" of making a final investment decision, but declined to elaborate.
Dominion still requires approval from the US Department of Energy to export LNG to Japan or other countries that have not yet ratified a free trade agreement with Washington, as well as the approval for plant construction from the relevant authorities.
The US Cove Point project aims to start up in 2017, after securing the relevant approvals, Sumitomo and Tokyo Gas said.
