North West Shelf Cuts LNG Supply to Tokyo Gas in New Contract

By Shigeru Sato and Megumi Yamanaka
Sept. 1 (Bloomberg) -- The North West Shelf venture will cut sales of liquefied natural gas to Tokyo Gas Co., Japan's biggest distributor of the fuel, as the Australian supplier seeks to broaden its base of Asian customers, company officials said.
The venture will sell about 500,000 metric tons of LNG a year to Tokyo Gas in a new contract, said the company officials, who asked not to be identified because the agreement hasn't been signed yet. That's 37 percent less than the 790,000 tons supplied annually under an existing accord.
The North West Shelf venture is negotiating with its Japanese customers on extensions to 20-year contracts that expire in 2009. Chugoku Electric Power Co. and Toho Gas Co. are among buyers that have secured more LNG from the A$19 billion ($14.5 billion) venture. Woodside Petroleum Ltd., the venture's operator, in June said it may seek increased LNG sales to China to tap growing demand for the cleaner-burning fuel. Tokyo Gas will buy from new suppliers such as Royal Dutch Shell Plc's Sakhalin-2 project.
``Japanese utilities are accelerating efforts to find new supply sources,'' said Shigeki Matsumoto, an analyst at Nomura Securities Co. in Tokyo. ``There are plenty of new LNG projects in the pipeline.''
The agreement with Tokyo Gas, which is for eight years starting April 2009, may be worth about 150 billion yen ($1.28 billion), based on Finance Ministry import data for the year ended March 31. North West Shelf has the option to extend the contract by seven years, the company officials said. Talks concluded yesterday, they said.
Naoyoshi Ogake, a spokesman at Tokyo Gas, and Kirsten Stoney, Perth-based spokeswoman for North West Shelf, declined to comment.
Tokyo Electric Power Co., Chubu Electric Power Co. and Osaka Gas Co. are among six Japanese customers that still have to renew their purchasing contracts with the venture. Japan is the world's biggest LNG market.
Supplier Hunt
North West Shelf's total exports to Tokyo Gas will drop 16 percent to about 1.6 million tons a year in 2009, from about 1.9 million tons now. The Tokyo-based gas company has a 25-year agreement to buy 1.1 million tons of LNG from the venture, in addition to the 20-year contract that ends in 2009.
Tokyo Gas, which serves about 9.6 million customers in Japan's capital and surrounding areas, is seeking other suppliers and plans to revamp its import terminals in Tokyo Bay to accept larger-sized LNG carriers from countries like Qatar. The company has signed contracts with new gas projects including Sakhalin-2 in Russia, and Pluto and Gorgon in Australia.
Tokyo Gas owns four LNG carriers with holding capacity of as much as 145,000 cubic meters to transport the fuel to its three receiving terminals in Tokyo Bay.
LNG is natural gas chilled to liquid form, reducing it to one-six-hundredth of its original volume, for transportation by tanker to destinations not connected by pipeline. On arrival it is converted back to gaseous form for delivery to users such as power stations.
China Cargo
North West Shelf signed a contract in December 2004 to sell more than 3.3 million tons of LNG a year to China National Offshore Oil Corp., the nation's third-largest oil company. The venture shipped its first cargo in May to an import terminal in Guangdong.
China, the world's biggest energy user after the U.S., wants to boost the share of its energy produced from the cleaner-burning fuel to 8 percent by 2010 to cut pollution and reduce its reliance on coal and oil.
Japanese power producers and manufacturers are shifting to gas because of soaring crude oil prices and environmental concerns. The volume sold by Japan's 211 gas distributors jumped 7.7 percent in year ended March 31, according to the Japan Gas Association. Sales have grown every year over the past 28 years.
Toho Gas, which supplies Toyota Motor Corp.'s plants in central Japan, in May signed a contract with North West Shelf to buy 760,000 tons a year, three times the 230,000 tons bought under a contract that ends March 2009. The Nagoya-based company has another contract with North West Shelf for 297,000 tons a year, which started in April 2004.
Royal Dutch Shell Plc owns 34 percent of Woodside and owns a one-sixth stake in the North West Shelf venture. BHP Billiton, Chevron Corp., BP Plc and a venture between Mitsubishi Corp. and Mitsui & Co. also owns stakes. The venture's customers also include Korea Gas Corp., the world's biggest buyer of LNG.
To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net ; Megumi Yamanaka in Tokyo at myamanaka@bloomberg.net .