US$600b Japan LNG contracts at stake

FAIR TRADE PROBE:

JAPAN’S probe into whether the resale restrictions in most of its liquefied natural gas (LNG) contracts violate fair trade laws may lead to the renegotiation of more than US$600 billion (RM2.4 trillion) worth of deals that run until almost the middle of the century.

The world’s biggest buyer of the fuel has agreements for at least 1.46 billion tonnes of supply between next year and 2040, according to Bloomberg New Energy Finance (BNEF). Removing contracts that either don’t bar resale or originate in countries that traditionally don’t restrict reselling leaves about 1.03 billion tonnes linked to agreements that may include the limitation, worth 66.6 trillion yen (RM2.54 trillion) at last year’s average price.

Japan Fair Trade Commission (JFTC) was in the preliminary stage of investigating if so-called destination clauses impede competition laws, and its finding may be announced as early as this year, Bloomberg News reported last week. Existing contracts may be renegotiated if the restrictions are found to be in violation, as happened last decade in Europe, according to BMI Research.

“Every contract, one by one, would have to be inspected to see if the JFTC’s findings apply,” said Hiroshi Hashimoto, a senior analyst with the Institute of Energy Economics, Japan. “That may turn out to be a difficult task.”

The European Commission decided in October 2004 the clauses restricted competition. Japan may need to resolve any contractual disputes after the decision via government-level negotiations, as was done in Europe, because many of the suppliers are state-owned companies, said Yoshizumi Tojo, a professor of law at Rikkyo University, here.

“Japan could stop the JFTC’s specific query into a contract in return for getting a compromise from a supplier that they remove the clause,” said Tojo.

The contracts are being reviewed as the bargaining power of LNG buyers strengthens amid a global glut and may accelerate the shift by