CNOOC Gas and Power Trading & Marketing Limited (CNOOC), a subsidiary of China National Offshore Oil Corp, has entered into a memorandum of understanding with Japanese joint venture JERA and Korea Gas Corporation (KOGAS). The MoU was announced on March 23 and concerns cooperation in the liquefied natural gas, or LNG, business.

The three firms buy around one-third of global LNG production, and clubbing together gives them a much stronger negotiating position with LNG exporting countries such as Qatar, Australia and Malaysia. The scale of the agreement may tilt the balance of power in the global LNG business away from the sellers to the buyers.

The traditional model used by LNG exporters is very long-term fixed supply contracts, with restrictions on the buyers selling excess LNG on to third parties – so called destination restrictions.

Under the memorandum of understanding, JERA, KOGAS and CNOOC have said that they will discuss opportunities for mutual collaboration, with specific areas for discussion including joint procurement of LNG, joint participation in upstream projects, and co-operation relating to LNG shipping and storage.

JERA is a joint venture between Chubu Electric Power Group and Tokyo Elecric Power. The name is derived from a contraction of the phrase “Japan's energy for a new Era” – JERA. It was established in 2015, when the two companies agreed to implement a comprehensive alliance covering the entire supply chain from upstream fuel investment and fuel procurement to power generation.

JERA said in a statement that LNG demand fluctuates widely depending on economic conditions and energy policy in each country. JERA believes that in order to cope with such fluctuations it is essential to develop the business environment through means such as accommodation schemes between buyers. JERA also expects the MoU to provide a platform for sharing views on issues related to traditional LNG business practices such as destination restrictions and will help in investigating ways to gain even greater flexibility in procurement.

JERA will continue to work together with LNG buyers and other leading companies both within and outside Japan as it seeks to achieve even more competitive procurement in an LNG market undergoing great change.

JERA has previously signed MoUs with Pavilion Gas of Singapore, and the state-owned Electricity Generating Authority of Thailand, for cooperation in the LNG business. But this latest agreement is on a much larger scale, and could dramatically change the balance of power in the LNG business.


Image: Shimizu LNG unloading arm, and Mt Fuji, courtesy of Tnk3a/Wikimedia