Japan's JERA to Integrate EDF Trading's LNG Business Into Joint Venture

Japan’s JERA Co, a fuel purchasing joint venture of Tokyo Electric Power and Chubu Electric Power, has agreed with French utility EDF’s trading arm to expand an existing cooperation into liquefied natural gas (LNG).

Their basic agreement on LNG would combine the French company’s LNG business into JERA’s standing trading venture with EDF Trading (EDFT) for coal and freight, which kicked off in April.

The deal with EDF Trading, which annually trades around 3 million to 5 million tonnes of LNG, allows JERA to have EDF Trading’s access to European LNG and gas markets.

JERA is the world’s biggest LNG buyer with annual intake of around 35 million tonnes.

It is critical that JERA has the flexibility to adjust to volatile LNG demand in the mid- to long-term in Japan amid the uncertainties over the restart of nuclear plants and the growth of renewable power in Japan, Izumi Kai, JERA general manager of the trading business development unit, said.

The two would collaborate on LNG business under JERA Trading for their parent companies, he said.

Japan’s annual LNG demand is likely to fall below 70 million tonnes by around 2030 after importing more than 83 million tonnes last year, government has said.

“There is too big an uncertainty in LNG demand for us to be able to adjust only through flexibility in existing contracts, and we would like to respond well to the challenge through the deal with EDFT,” Kai said.

“We were not looking for a partner that has large volumes but a partner that has the know-how and experience to carry out various trading operations,” he said.

The combination would let JERA share EDFT’s access to 15 LNG terminals in Europe that connect to six European gas hubs in Great Britain, France, the Netherlands, Belgium and Spain, Kai said.

The deal would also help JERA sell LNG offtake to global markets from the U.S. Gulf Coast’s Freeport project, which is expected to start operations as early as next October.

JERA would also be able to hedge various risks such as fluctuating gas prices and currencies, as well as help JERA to buy feedstock gas and power for the Freeport project using EDFT’s extensive expertise in the U.S.

JERA expects to complete the LNG integration in the second half of 2018, he said.

The coal and freight venture between the two is 67 percent owned by JERA and 33 percent by EDFT.