Jera, EDFT To Form LNG Optimisation JV

The world's largest LNG buyer, Japan's Jera, and EDF Trading (EDFT) announced December 14 they have signed a non-binding agreement for an LNG optimisation joint venture through Jera Trading (Jerat), which could eventually have a bearing on the Japanese firm's position at Freeport LNG.

Jera Trading International, a wholly-owned subsidiary of Jera, holds 67% of the shares in Jerat, while the remaining 33% will be held by EDFT, which is wholly owned by French power giant EDF.

Jerat shareholders will have joint responsibilities in managing the business. Discussions will continue towards a final agreement which is expected to be reached in 2018.

Both parent companies said that this "new step in the partnership between Jera and EDFT would build on the successful completion on April 4 2017 of the collaboration on coal and freight trading through Jerat. With demand for LNG in Japan becoming increasingly variable and difficult to predict and the ramp up in US LNG liquefaction, Europe has become a key balancing market for excess global LNG. As a result, Jera and EDFT believe that there is significant room for optimising LNG on a global basis, establishing a more liquid market, and over time developing a clear pricing signal for LNG in Asia.

A week ago it emerged that Jera and EDFT had been holding discussions regarding an LNG optimisation joint venture. 

Jera, a joint venture of major Japanese utilities Tokyo Electric and Chubu Electric, said it has been focusing on developing flexible LNG supply sources and creating new LNG demand globally. EDFT has a successful third party LNG trading business, access to the European LNG and gas markets, and is one of the largest financial 'JKM' (Standard & Poors' benchmark Japan Korea Marker) traders in the market.

"By bringing together their resources, the parties will be in a better position to respond to uncertainties of LNG demand in Japan and Europe and supply Jera and EDF’s wider global portfolio, to optimise their operations and improve the competitiveness of LNG in the market, as well as supporting the development of deeper, more liquid LNG markets," both sides said.

Subjective to both parent boards' approvals, they said that Jera and EDFT would combine their LNG trading activities through Jerat, and that "Jerat would become the exclusive LNG optimiser for Jera and the EDF Group, managing their collective short-term optimisation activity in the LNG markets." Discussions will continue towards a final agreement which is expected to be reached in 2018.

If finalised, Jerat would become one of the largest utility-owned seaborne energy optimisers, with global  LNG, coal and freight activities and  300 staff based in Japan, Singapore, UK, US and  Netherlands.  As part of the transaction, Jera and EDFT are in discussions regarding collaboration on the optimisation of gas and power supplies for Jera’s US liquefaction position at the Freeport LNG terminal.

EDFT agreed a short-term contract to buy LNG from Jera in May 2016, for delivery into Europe. EDFT has capacity at the Dunkirk LNG plant as well as in the Rovigo terminal in Italy, through its Edison subsidiary. The contract starts next June.