Japan's Kansai Electric is looking to add more flexible contracts that will enable the utility to respond swiftly to changes in demand and adjust its portfolio by buying or selling volumes, a company executive said in an interview with Platts this week.
Kansai Electric, whose LNG procurement hit a record 9.44 million mt in fiscal year 2014-15 (April-March), faces growing demand uncertainty as the domestic retail market is set to fully open to newcomers in April next year, a measure which could dent or boost its electricity sales.
Timing of the restart of Kansai Electric's two Takahama 870-MW nuclear units also remains murky, and Japan's slow economic growth is adding another variable to the equation.
Against such backdrop, the Osaka-based power utility struck a deal with BP, under which BP would supply Kansai Electric with up to a total of 13 million mt of LNG over 23 years.
The agreement also allows Kansai Electric to resell the volumes to third parties or ask BP to find alternative buyers by mutual consent, the first of its kind in Japan.
The utility also inked a contract with France's Engie under which Kansai Electric would sell 400,000 mt/year of LNG from its US LNG and buy an equivalent amount of LNG from Engie's portfolio, with the aim to cut shipping costs.
"If we have a existing contract which is about to mature and have to look for alternatives, we would like to consider these kinds of contracts," Tatsushi Fujiwara, general manager for Kansai Electric's office of fossil fuel said.
"It's our basic thinking that we want to cooperate with various sellers, traders and buyers to enhance our flexibility," he added.
The most ideal allocation would be for long-term contracts to represent 70% of Kansai Electric's LNG portfolio with mid- and short-term contracts, including spot contracts, accounting for 30%, Fujiwara said.
Still, Fujiwara said Kansai Electric is not aiming for any specific numerical targets to construct its LNG portfolio and he wants to keep all options available.
"The business environment is shifting and so is our position. We don't want to tie us down," he said. KANSAI TO RECEIVE FIRST US LNG IN 2016
Kansai Electric will be the first Japanese utility to receive US LNG next year when its contract with Cheniere Energy kicks off.
It plans to buy three to four cargoes between 2016 and mid-2017 from the Sabine Pass project.
The utility also has contracts to buy 800,000 mt/year of LNG from the Cove Point project for 20 years and 400,000 mt/year from the US Cameron LNG project for 20 years.
Besides the volume it plans to sell to Engie, Kansai Electric aims to bring the remaining US LNG back to Japan. But Fujiwara did not rule out the possibility of swapping them out, similar to what it has done with Engie, if they could find an appropriate partner.
Fujiwara also said Kansai Electric might sell its US LNG in other markets. The utility is also considering various options in terms of transporting US LNG.
"In times like now, there seems to be a lot of ships available. It's not necessarily a smart thing to build your own ships," he said.
Last month, Kansai Electric signed a 10-year contract to supply 200,000 mt/year of LNG, or three cargoes a year from April 2018, to Hokkaido Electric which is building its first gas-fired plant.
Fujiwara said Kansai Electric has not decided which volume from its portfolio would be sold to Hokkaido Electric yet.
Still, the deal is another step to add more flexibility to the way it manages its LNG portfolio.
"In a broad sense, I think we have already moved into the trading business," Fujiwara said. "If we could get more experience to prepare ourselves or cooperate with others, we would like to expand it."
