With the supply and demand of LNG (liquefied natural gas) tightening worldwide due to Russia's invasion of Ukraine, major Japanese trading companies and electric power companies have signed long-term contracts of about 10 years with Oman in the Middle East, and after 2025, 2 million tons per year We reached a basic agreement to newly import the surplus.

Major trading companies Mitsui & Co., Itochu Corporation, and Japan's largest power generation operator JERA signed a long-term contract with Oman for about 10 years on the afternoon of the 27th, Japan time. A basic agreement was reached to newly import LNG.



A signing ceremony for the agreement was held in Muscat, the capital of Oman, attended by officials from both the Japanese and Omani governments.



Prior to this, Minister of Economy, Trade and Industry Nishimura, who was visiting the site, emphasized, "At a time when the supply and demand for LNG is expected to continue to be tight, this is extremely significant for Japan's energy security."



Mitsui & Co., Itochu Corporation, and other companies hold part of the interests in LNG produced in Oman, and Japan currently imports more than 1.9 million tons annually from Oman, which is 2.6% of the total LNG imports.



Oman's export base is located outside the Strait of Hormuz in the Persian Gulf, making it less susceptible to conflicts and other conflicts.



According to people involved, other Japanese companies are also negotiating with Oman. will continue to evolve.

what the experts saw

We asked Ken Koyama, Senior Research Fellow at the Institute of Energy Economics, Japan, about the significance of signing a long-term contract with Oman in the Middle East for the import of LNG (liquefied natural gas).

Q. Why is diversification of LNG procurement necessary?

A. If you do not rely on one supply route and distribute it, even if there is a problem with the supply route, you can avoid or reduce the impact.



Europe had a big problem because it relied too much on Russia for LNG procurement, but Japan has been importing LNG from various countries.

The long-term contract with Oman is also part of the company's diversification.

Q. How do you evaluate the long-term contract with Oman?

A. In 2022, the impact of Russia's invasion of Ukraine caused a sharp rise in international energy prices and destabilization of the market.

The recognition that securing a stable supply of LNG is one of the most important issues worldwide has also deepened.



If a long-term LNG contract is concluded with Oman this time, it will greatly contribute to the stable supply of energy.

Q. Do you regret that China won the slot without signing a long-term contract with Qatar?

A.Before the crisis in Ukraine, we thought it would be more efficient to use spot trading as much as possible to procure with a high degree of freedom.



But the crisis has changed the world's perception that the value of stable long-term contracts is still very high.

Q. What are your future challenges?

A.Because LNG buyers such as electric power companies and gas companies are exposed to competition from the liberalization of the retail business, it is difficult to make a long-term commitment to buy LNG.



The types of long-term contracts vary from 10, 15 and 20 years.



How to secure long-term contracts while considering the management side will be a big issue in the future.

[The significance of diversification] Japan depends on LNG imports for thermal power generation

Almost all of LNG (liquefied natural gas), which is the main fuel for thermal power generation, which accounts for more than 70% of Japan's power supply mix, is imported from overseas.



According to the Ministry of Economy, Trade and Industry, Japan imported 74.32 million tons of LNG last year.



By country,


▽Australia has the largest amount, accounting for 35.8% of the total, with more than 26.6 million tons, ▽ followed by Malaysia, which accounts for 13.6%, with more than 10.1 million tons


.


The United States ranked fourth with

over 7.06 million tons accounting for 9.5%,


and Russia ranked fifth with over 6.54 million tons accounting for 8.8%.



Last year's imports from Oman, with which Japan signed a new long-term LNG contract, ranked eighth with over 1.9 million tons, accounting for 2.6% of the total.



With Russia's invasion of Ukraine making the situation surrounding the stable procurement of LNG increasingly uncertain, an increase in imports from Oman is expected to have a positive effect on the diversification of procurement sources.

[Background] What is the “spot market” where LNG prices are soaring?

LNG (liquefied natural gas) imported by Japanese electric power companies and energy-related companies is procured through multi-year “long-term contracts” or the “spot market” where transactions can be made immediately.



As LNG is in a "scramble" situation around the world, the spot market price is soaring, so it is considered to be advantageous to conclude a "long-term contract" that allows purchase at a relatively stable price. .



Approximately 80% of Japan's LNG procurement is based on long-term contracts, many of which have historically been linked to crude oil prices.



The remaining 20% ​​is the "spot market", and in the case of Japan, we mainly procure with a price index called JKM = Japan Korea Marker.



According to JOGMEC, the price of JKM was about $5 per million BTU, which represents the unit of heat used in gas trading in 2019 when the market was stable.



It soared to a record high of $84.7 in March after Russia's invasion of Ukraine.



After that, although it gradually declined in April, the supply of natural gas from Russia to Europe decreased from June to August. It climbed to $70.



Currently, LNG stockpiles are progressing in Europe, and it is trending at around $30, but even so, the price is more than five times higher than in 2019.



After this winter, Europe's stockpiles will decrease, and if LNG procurement is increased, prices may rise again, and increasing "long-term contracts" has become a major issue for Japan.