Business / Corporate | Regional voices: Chubu

LNG in focus as energy giants Chubu Electric and Tepco deepen ties with Jera venture

Chunichi Shimbun

As Chubu Electric Power Co. and a unit of Tokyo Electric Power Company Holdings Inc. complete the integration of their thermal power businesses Monday under joint venture Jera Co., the growing potential of LNG at home and abroad has received renewed attention.

The joint venture will have nearly 30 percent of the nation’s total power generation capacity — making it the nation’s largest electric power firm — although that figure includes the potential output of nuclear plants shut indefinitely for safety checks.

Jera was set up in 2015 and has been handling fuel purchases and transport for the two utility firms. It imports some 35 million tons of liquefied natural gas annually, amounting to about 40 percent of the total imports by Japan — the world’s top LNG importer — and more than 10 percent of total gas traded globally.

Amid rising global LNG demand, Jera sees business opportunities in overseas gas trading.

“In the near future, we can realize a highly transparent LNG market in Asia,” Jera President Yuji Kakimi told some 1,000 attendants at the LNG Producer-Consumer Conference 2018 held in October in Nagoya. Government officials and company executives from 28 countries and regions attended the conference.

The business landscape for the global LNG market has changed drastically in recent years. China, which is struggling with air pollution, has been eagerly trying to shift its energy source from coal to gas, emerging as the world’s second-largest LNG importer.

Natural gas is expected to surpass coal as the world’s second-biggest energy source after oil by 2030, propelled by a drive to curb air pollution and climate change, as well as a rise in LNG use, the International Energy Agency said in November.

Changes are seen on the production side as well, with the United States succeeding in shale gas production and gas fields being developed in emerging markets such as Africa.

Moreover, an increasing number of LNG sales and purchase agreements are made without a so-called destination restriction, making it possible for buyers to freely resell the gas acquired under low-priced long-term contracts to another party at higher prices to cope with demand fluctuations.

Flexibility in LNG trading has been growing as the pool of contracts with fixed destinations shrinks as they expire.

IEA Executive Director Fatih Birol pointed out at the conference that there is growing dynamism and liquidity in the LNG market and said that the world is entering a golden age of gas.

Jera plans to not only resell the gas that can’t be used within the company but also start dealing in futures trading to profit from price changes.

Last year, it formed a joint venture with French state-controlled utility EDF to merge their LNG trading business, enabling it to use EDF’s LNG terminals and pipelines in Europe to engage in LNG trading in the European market. The firm is hiring people with experience at major European fuel firms to create a team of non-Japanese traders with expertise.

Referring to Jera’s business strategy, Shinichi Yamazaki, senior sector analyst at Okasan Securities Co., said the firm “is entering a business field that no other domestic electric or gas companies have stepped into.”

Emerging economies in Asia are likely to continue shifting to gas in the future, Yamazaki said. “Although there are risks, taking this path cannot be avoided in order to maximize profits.”

Jera expects to post a consolidated net profit of ¥60 billion in the 2019 business year, with hopes to increase the profit to ¥200 billion in the 2025 fiscal year.

It projects a profit of ¥15 billion from fuel trading in fiscal 2019 and hopes to increase the profit to ¥70 billion in 2025, supported by growing usage of LNG for not only power generation but also for city gas and fuel for ships.

The gas industry believes active trading by Jera will help stabilize domestic LNG prices.

“(Jera) has stability, economic efficiency and flexibility in fuel purchases,” said Chubu Electric Chairman Akihisa Mizuno who spearheaded the creation of the joint venture. “I hope the company will make the most of its capabilities to realize supply of low-priced energy.”

Jera, which is targeting an annual integration synergy of ¥100 billion within five years, plans to announce a detailed business plan in April.

This section features topics and issues from the Chubu region covered by the Chunichi Shimbun. The original article was published March 23.