Japan Signs 17-year Deal to Buy Gas from BP at North American Prices
BP PLC will sell liquefied natural gas to a major Japanese utility based on North American gas prices instead of international crude oil markets, officials announced last week.
On Friday BP announced a 17-year agreement to sell cargoes of LNG to Japan's largest power provider, Tokyo Electric Power Co. (TEPCO), the same company that operates the Fukushima Daiichi nuclear power plant that partially melted down in the wake of a 2011 tsunami. The new agreement is to launch in 2017.
The company confirmed that the Freeport LNG project being built just south of Houston will likely be tied to the TEPCO contract.
Following along with other deals inked between Japanese electricity generators and Western LNG suppliers investing in export capacity from the United States, BP says the LNG it aims to sell will be priced in accordance with gas prices in North America. What makes BP's deal notable, however, is that the company has agreed to sell LNG to TEPCO on that pricing basis even if shipments originate outside the U.S.
Japan's 2011 nuclear crisis at Fukushima forced the shutdown of Japan's fleet of nuclear power plants, spiking demand for LNG in the country and sending international LNG prices higher. Those events also fueled a rash of development plans that would liquefy natural gas from U.S. shale sources and ship it abroad.
The rise of a U.S. LNG export industry serves as an opportunity for Japan as Tokyo aims to bring international LNG prices down and to make the market of LNG more liquid. This latest deal between BP and TEPCO brings the nation closer to that goal. BP made clear that the gas will be priced according to an index aligned with North American Henry Hub prices, rather than on an oil index preferred by Middle East LNG suppliers.
By 2017, it is expected that an expansion of the Panama Canal will be complete, greatly shortening the distance that large LNG tankers would have to travel between the Gulf of Mexico coastline and ports in Japan.
BP declined to give details on how exactly the Henry Hub LNG index price would be designed.
A BP official confirmed that sales to TEPCO of LNG not derived from U.S. shale gas supplies are also on the table under the terms of this new agreement.
"We're not going into any details on this, but HH [Henry Hub] is indeed part of the deal," BP spokesman Robert Wine said in an email. "The agreement allows us to supply from our portfolio so it's not tied to any particular country or terminal though as our release says there'll be a role for Freeport."
Under the terms of the deal, TEPCO will purchase up to 1.2 million metric tons of LNG from BP. Aside from the Freeport LNG project, BP notes that it is investing in other LNG export projects in Australia and Indonesia, two other likely sources for shipments to Japan.
Nathanial Gronewold, E&E reporter
Republished from EnergyWire with permission. EnergyWire covers the politics and business of unconventional energy. Click here for a free trial
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