JERA expects US LNG share to reach 30% after latest 5.5 mil mt/year Gulf Coast deals

Japan's JERA expects the share of US LNG in its long-term supply portfolio to rise to about 30% by around 2035, from the current level of 10%, following its latest deals to purchase up to 5.5 million mt/year from four US Gulf Coast export developers, a top executive said June 12.

"Although we have not finalized our long-term LNG contractual policy, if we were to secure long-term contracts at the level of 30 million mt[/year] in the 2030s, the proportion of US LNG procurement in our long-term contractual portfolio would increase to about 30% from 10% [currently]," Ryosuke Tsugaru, senior managing executive officer and chief low-carbon fuel officer at JERA, told an online press conference.

The new deals announced in Washington on June 11 build on JERA's existing operations in the US, which include offtake contracts totaling 3.5 million mt/year from Freeport LNG in Texas and the Sempra-Cameron LNG project in Louisiana. These contracts account for about 10% of its annual LNG handling volume of about 30 million-35 million mt/year, Tsugaru said.

"It is likely that the timing for reaching the so-called maximum production volume from all the quantities procured this time and starting the so-called 5.5 million mt[/year] of offtake will be after 2032 or 2033," Tsugaru said.

Noting that the start of the additional US LNG supply varies by contract, Tsugaru said the earliest supply could begin at the start of 2029, while the latest might start at the beginning of 2031, followed by a gradual increase in production.

Describing the scale of the maximum 5 million mt/year LNG supply deals, Tsugaru said, "However, if we look at it as a package, the procurement from the US Gulf Coast at a certain time, with the same attributes, can be said to be the largest scale considering the era of parent companies Tokyo Electric Power Co. and Chubu Electric Power Co."

JERA, Japan's largest power generation company, was established in April 2015 as a 50-50 joint venture between TEPCO Fuel & Power and Chubu Electric.

Gulf Coast

JERA, at a June 11 event attended by US Interior Secretary Doug Burgum and US Energy Secretary Chris Wright, announced its plan to purchase up to 5.5 million mt/year of US LNG from NextDecade, Commonwealth LNG, Sempra Infrastructure and Cheniere Marketing.

The firm and preliminary US LNG deals will all span 20 years or more, with volumes linked to Henry Hub prices and delivered on a free-on-board basis, Tsugaru said.

When asked whether JERA will consider additional US LNG procurement, Tsugaru said, "In principle, we believe we have secured what is currently deemed necessary at a minimum for procurement from the Gulf Coast."

"On the other hand, we will continue to negotiate not only with the US but also with projects in the Asia-Pacific region and the Middle East to diversify our portfolio through new contracts," he added.

Asked about the possibility of participating in a US LNG project, Tsugaru said, "At this point in time, there are no plans to actively prioritize management resources for investment in the liquefaction of LNG."

Tariff talks

JERA's announcement of the supply deals coincided with the Japanese government's ongoing tariff negotiations with the White House.

"The decision for this US LNG procurement was not made at the request of the US government or the Japanese government," Tsugaru said.

"It was made solely as an effective measure to achieve stable supply to Japan and was implemented accordingly," he said, adding that the company has held talks with key suppliers, including those from the US, since spring 2024 as part of its LNG procurement strategy review.

"Through our LNG procurement, the import value will increase significantly, and by taking delivery of LNG, LNG projects will be starting up," Tsugaru said, adding that this move will lead to investments and job creation, resulting in considerable economic effects.

"As a private company, we are not in a position to comment on the impact on tariff negotiations and will refrain from doing so," he said.

Commenting on JERA's interest in procuring Alaska LNG, Tsugaru said, "We evaluate Alaska as a project that contributes to stable supply for Asia, including Japan, due to its geographical advantages and abundant reserves."

"On the other hand, our specific examination is currently at the stage of obtaining project information, which serves as a prerequisite for such considerations," he added. "We are waiting for detailed information to be provided from the project."

Qatar LNG

When asked whether JERA's latest US LNG purchase deals were meant to replace about 5.5 million mt/year of Qatari LNG supply following the Qatargas 1 contract expiry in 2021, Tsugaru said, "From the perspective of our procurement strategy, we categorize Qatari LNG and US LNG, particularly from the Gulf Coast, as having completely different categories."

"Therefore, the LNG procurement from the US Gulf Coast will not affect our position or evaluation of Qatar at all," he said. "The future LNG market will be dominated by the two major players: the US and Qatar."

"From our perspective, Qatar will have a significant presence in the future global market, along with its overwhelming reserves and supply reliability," he added.

"In fact, after the [2011] Great East Japan Earthquake, when Japan faced an energy crisis, Qatar undoubtedly provided the largest support in terms of LNG supply," Tsugaru said. "We highly value Qatar as a reliable supplier that offers absolute supply stability in times of crisis."

JERA currently buys LNG from the Qatargas 3 project under a 700,000 mt/year contract that will expire in 2028.

"We are concerned about the current reduction in contracts and would like to consider future measures. We are serious about this," Tsugaru said.