Japan's Chubu nears deal with GAIL to buy LNG jointly

TOKYO Fri Jan 24, 2014 7:55pm IST

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TOKYO (Reuters) - Japan's Chubu Electric Power Co said on Friday it will sign a preliminary deal with India's GAIL (GAIL.NS) as soon as possible to buy liquefied natural gas (LNG) together, the latest move by Asian buyers looking to cut prices for the fuel.

Rising demand for LNG in Asia, already the top destination for the fuel, has helped push its price to near-record levels and now buyers such as India and Japan are trying to find ways to cut their soaring gas import bills.

India, Japan and other Asian countries that together import 70 percent of the world's LNG met in December to discuss forming a buyers' club to get a better deal from suppliers.

Asian prices are now more than four times the cost of natural gas in the United States, where a boom in shale oil and gas has sharply reduced prices.

Apart from joint purchases of LNG, Chubu and GAIL aim to explore cooperation in other areas such as shipping, Chubu President Akihisa Mizuno told reporters on Friday.

Japanese Prime Minister Shinzo Abe is set to visit India on Saturday.

A GAIL executive who did not wish to be identified said his firm is in talks with Japanese companies to buy LNG together but "nothing has been firmed up yet".

"There is no memorandum of understanding contemplated at this stage with Chubu," the source said.

India's oil secretary, Vivek Rae, said in December that India and Japan were planning to float joint tenders for LNG imports.

Last week, it emerged that Japan's Tokyo Electric Power Co (Tepco) is proposing to rope in domestic and foreign companies to procure jointly up to 40 million tonnes a year of LNG.

Tepco's proposal was outlined in a business revival plan approved by Japan's government earlier this month.

Asian importers say they are charged an excessive premium over other regions because of a practice of linking LNG contracts to oil prices. They also want more flexibility in contracts over ship destinations to free up the market.

The buyers from China, South Korea, Japan, India and Taiwan were due to meet again sometime next month but the GAIL executive said that may be delayed.

"It looks difficult to have a meeting of major LNG buyers in February. We have not yet received the reports on demand," the executive said.

During Abe's visit, Japanese trader Mitsui & Co may expand its partnership with Oil and Natural Gas Corp (ONGC.NS) to consider joint acquisitions of upstream oil and gas stakes globally, an industry source in Japan said.

ONGC and Mitsui had signed a preliminary agreement to consider jointly buying LNG in August 2012.

(Reporting by Osamu Tsukimori; Additional reporting by Nidhi Verma in NEW DELHI; Editing by Dale Hudson)

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