Two of the world’s largest liquefied natural gas buyers agreed to combine LNG trading operations, the latest sign that growing global supply of the fuel is spurring deeper liquidity in the physical market.
The trading units of Japan’s Jera Co and Electricite de France SA signed a non-binding agreement that will expand their existing partnership that was formed in April, Jera Trading Pte, said in a joint statement on Thursday. The venture, in which Jera’s subsidiary owns 67% with EDF’s holding the rest, already coordinates coal and freight trading.
The agreement cements Jera as one of the biggest LNG buyers and will strengthen its ability to trade cargoes and source cheaper gas for resource-poor Japan. EDF, which is owned primarily by the French government, has been seeking to sell about €10bn ($11.8bn) of assets by 2020 to help finance new projects.
Jera, a joint venture between Tokyo Electric Power Co Holdings Inc and Chubu Electric Power Co, agreed last year to buy EDF Trading Ltd’s coal-trading business. Jera is contracted to purchase more than 40mn tonnes of LNG next year.
EDF has long-term contracts to buy about 6mn tonnes of LNG annually, with most of it coming from Qatar, according to data compiled by Bloomberg New Energy Finance. EDF Trading also has access to European LNG infrastructure and markets and is one of the largest financial traders in north Asian LNG futures, according to the statement.
Having more flexible trading operations will help Jera tackle the unclear gas-demand future in Japan, which could range between 60mn and 87mn tonnes by 2030 depending on nuclear restarts, rollout of renewables and coal-fired facilities facing tighter environmental rules, according to Izumi Kai, general manager for the Tokyo-based company’s trading business development.
The deal follows consolidation and competition among some of the largest players in the LNG market. Royal Dutch Shell Plc merged with BG Group Plc last year to create the biggest LNG player in terms of total supply portfolio size, and Total SA last month bought Engie SA’s LNG business.
“The proposed deal will mostly benefit Jera by improving operational efficiency in trading and creating more opportunities for location swaps,” BNEF analyst Maggie Kuang said in a note Thursday. “For EDF’s trading business, it is now backed by the world’s largest LNG buyer.”
Through integrating with EDF’s LNG trading arm, Jera will gain access to over 8mn tonnes a year of European regasification capacity, according to Nicholas Browne, an analyst with Wood Mackenzie Ltd. The accord will give Jera increased access to supply linked to European spot markets, he said by e-mail.
“The joint venture will go a long way to helping Jera realise its ambitions to become a major player in LNG trading and expand its influence beyond Asia,” Browne said. “It may take some time before they unlock the benefits from optimisation of this larger, more global LNG trading and shipping portfolio.”
EDF has long-term contracts to buy about 6mn tonnes of LNG annually, with most of it coming from Qatar, according to data compiled by Bloomberg New Energy Finance. EDF Trading also has access to European LNG infrastructure and markets and is one of the largest financial traders in north Asian LNG futures.
