Tokyo Gas Signs Location Swap Deal with UK's Centrica

Japanese gas supplier Tokyo Gas Co said on Monday it has signed a memorandum of understanding with British utility Centrica for a location swap of liquefied natural gas (LNG) to cut transportation costs.

A location swap of LNG is still rare globally, but it is expected to grow in number in Japan as cutting procurement costs is essential for city gas suppliers ahead of the full city gas retail market liberalisation from next April.

Japan is the world's top LNG importer and consumer.

Tokyo Gas will supply Centrica with up to 700,000-800,000 tonnes per annum (tpa) of U.S. shale LNG - from Cove Point project in Maryland - starting possibly from late 2018, when Cove Point production stabilises, said Tokyo Gas Executive Officer Kentaro Kimoto.

In return, it will receive the same volume of LNG procured in Asia Pacific markets from the British firm. The two have not decided how long the location swap would last, Tokyo Gas said.

Tokyo Gas, which has a contract to buy 1.4 million tpa of LNG for 20 years from Cove Point, was considering using four ships to transport LNG from the U.S. shale gas project. Tokyo Gas is now considering allocating one or two of the four ships to dedicate supplies to Centrica, Kimoto said.

The deal will help Tokyo Gas avoid passing the costly Panama Canal and the two firms will benefit from reduced transportation costs, Kimoto told reporters.

The two companies will next aim to reach a legally binding agreement, possibly next year, Kimoto said.