June 27, 2017 / 9:03 AM / a month ago

Japan regulator to host briefing on probe into LNG trading

3 Min Read

TOKYO (Reuters) - Japan's Fair Trade Commission (JFTC) said it will give a briefing on its probe into liquefied natural gas (LNG) trading practices at 3 p.m. (0600 GMT) on Wednesday.

The commission late last year ordered Japan's LNG buyers to provide details on contract requirements that prevent them from reselling the liquefied fuel to third parties.

Markets have been waiting to hear from the powerful anti-monopoly regulator on the investigation into whether so-called destination clauses limit competition. Such a finding could lead to billions of dollars of LNG contracts being renegotiated.

Japan's trade ministry issued a report in May 2016 recommending that destination clauses be abolished or relaxed in the future so that utilities can resell cargoes or take advantage of arbitrage trade opportunities.

"We look forward to a finding that would back efforts to ease or abolish destination restrictions," said a source with one of Japan's LNG buyers, declining to be identified.

Japan, the world's biggest LNG buyer, and other Asian buyers have complained that the long-established practice of placing destination clauses in LNG contracts unfairly restricts trading of the fuel when it would make more economic sense to sell supplies into other markets.

Producers have rebuffed objections to the clauses, but that is starting to change as U.S. LNG supplies - linked to natural gas prices instead of oil prices - have become available. LNG out of the United States is sold at the loading point without destination restrictions.

Japan imported nearly 85 million tonnes of LNG in the year ended March 31 for 3.3 trillion yen ($30 billion), the Ministry of Finance's trade data showed. Most of Japan's long-term LNG contracts have destination clauses.

Japan, Europe, South Korea, China and India - together accounting for about 80 percent of total LNG imports - have jointly called for relaxing or abolishing destination clauses to create a more liquid LNG market, the trade ministry said.

In Europe, power generators over the last 10 years or so successfully negotiated more flexible natural gas supply deals with producers in dozens of arbitration cases.

The European Commission also put into place regulation that encourages natural gas to be more freely traded.

($1 = 111.7 yen)

Reporting by Osamu Tsukimori; Editing by Tom Hogue

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