Business

FTC reviewing whether no-resale LNG contracts are illegal

Bloomberg

The Fair Trade Commission is investigating whether clauses in contracts for liquefied natural gas that restrict buyers from reselling the fuel violate the competition laws of the world’s largest user of the super-chilled gas, according to people with knowledge of the matter.

The investigation is in an early stage and the FTC has held hearings with energy companies, said the people, who asked not to be identified because the information is private. The commission’s findings may be announced as early as this year, two of the people said.

Removing the restrictions would accelerate the shift by Japanese LNG buyers from traditional importers to international sellers, and highlights a power shift away from producers amid a global glut. The investigation follows a European Commission decision in October 2004 that the clauses restricted competition.

The FTC supervises business activities to prevent corporate behavior that violates the nation’s competition laws and has the authority to take measures against anything it views as illegal. A commission spokesman, who asked not to be identified, citing internal policy, declined to comment.

The Ministry of Economy, Trade and Industry has flagged destination clauses as a hindrance to the evolution of a freely traded market.

“In order to develop a flexible and liquid LNG market, these restrictions need to be eliminated to the greatest extent possible to increase the number of market players as well as trade volumes and frequencies to a level exceeding a certain critical mass,” METI said in a report published in May.

Annual LNG demand is forecast to increase by 140 billion cu. meters from 2015 through 2021, which is not enough to absorb the almost 190 billion cu. meters of new capacity slated to become operational, the International Energy Agency said in its Medium-Term Gas Market Report in June.

The amount of Japan’s electricity generated from coal is forecast to overtake that from LNG, and output from renewable energy will rise by 65 percent by 2026, according to an industry report last month. Forty of Japan’s 42 operable nuclear reactors remain offline amid safety concerns stemming from the March 2011 Fukushima disaster, despite government efforts to return the fleet to operation.

Coronavirus banner