Japan’s trading houses have built on their already extensive involvement in the LNG supply chain by long-term chartering LNG carriers directly for the first time.
Since September 2014, Mitsui & Co and Mitsubishi between them have booked 12 ships being built in Japan and South Korea to lift cargoes from the Cameron LNG project in Hackberry, Louisiana for up to 25 years.
Japanese traders have traditionally served as middlemen, smoothing sale and purchase agreement (SPA) negotiations between national utility buyers and LNG sellers and newbuilding contract discussions between shipowners, shipyards and charterers.
Over the years, trading-house involvement in the LNG supply chain has steadily increased, as these organisations have diversified and as Japanese LNG imports have grown. The traders now hold equity stakes in LNG-export projects and ships, co-ordinate project financing, facilitate payments and customs clearances and support technical innovation.
Japan’s traders have also branched out into the international LNG marketplace to serve third parties overseas.
In the early days, LNG sellers usually administered the shipping required for a project and most cargoes were carried on a delivered ex-ship (DES) basis. However, Japanese utilities – the world’s major buyers of LNG – were keen to control the transport arrangements at the earliest opportunity and used the clout of the country’s large trading houses to assist them.
Today, 50 years after Japan concluded its first SPA, Japanese utilities and trading houses control a charter fleet of 55 LNG carriers, including newbuilding orders. The 12 Mitsui and Mitsubishi ships are the first contracted against a trading house time-charter arrangement.
Mitsubishi and Mitsui lead
Mitsubishi, Japan’s largest trading house, has been a key player in LNG project development for almost five decades. Brunei – the world’s first large-scale LNG project – got the ball rolling, dispatching the inaugural cargo in December 1972. Mitsubishi’s 45 per cent interest in the project marked the first involvement of a Japanese company in LNG exports.
Today, Mitsubishi has ownership interests in 24 LNG carriers – and in the Brunei, Oman, Malaysia, North West Shelf, Tangguh, Sakhalin 2, Donggi Senoro and Cameron LNG projects.
Mitsui & Co’s participation in LNG projects is just as diversified. Its portfolio includes Abu Dhabi, North West Shelf, Qatar, Oman, Sakhalin 2, Equatorial Guinea, Tangguh and Cameron LNG.
Mitsubishi and Mitsui decided to charter ships for the Cameron LNG project directly for several reasons, including a desire to line up available newbuilding berth slots faster than other buyers of US LNG, notably JERA, Osaka Gas, Engie and GAIL. Budget restrictions at the time meant that Tokyo Electric, now a partner in JERA and a long-time customer of the two trading houses, had little cash to spare for newbuilding charters.
The scale of the traders’ commitment to the Cameron LNG project favoured the charter option. Mitsubishi and Mitsui have each signed up for 4 million tonnes per annum (mta), which played a big part in securing the finance for the scheme.
Arrangements with the Japan Bank for International Co-operation and several commercial banks were facilitated by the fact that Japan’s creditworthy utilities are purchasing a sizeable proportion of Cameron’s output.
The major Japanese trading houses’ ability to drive and co-ordinate new LNG projects draws on extensive organisational structures. Mitsui & Co can bring to the table experts from its projects, energy and integrated transportation systems business units and from its finance and legal divisions in project development work.
Other notable traders
Several other Japanese trading houses have built up a strong presence in LNG projects and shipping, but have thus far limited their chartering activities to the spot market.
LNG Japan, which unites the LNG trading interests of Sumitomo and Sojitz, formerly Nissho Iwai, secured Japan’s first SPAs based on FOB loadings, including Indonesia’s Badak IV project. The Badak IV fleet included the 1993-built LNG Flora and the 1994-built LNG Vesta, the first LNG carriers in which Japanese utility companies held a stake.
The ownership pool for the two 125,000m³ ships included the three largest Japanese gas companies; Tokyo Gas, Osaka Gas and Toho Gas. The SPA that LNG Japan had organised for the three utilities covered the delivery of 2.3 mta for a period of 20 years.
Trader Marubeni has also identified LNG transportation as a core business. Marubeni has ownership interests in 18 LNG carriers, with Teekay, BW LNG and SK Shipping, and is a leading partner in a new gas-fired power station scheme planned for Indonesia in 2021 that may use a floating storage and regasification unit (FSRU) to process inbound LNG.
Marubeni also has shareholdings in the Peru LNG, Equatorial Guinea, Qatargas 1 and Papua New Guinea LNG projects.
Itochu has a contract with Oman LNG to purchase 0.7 mta of LNG for 20 years, until 2026, and is a stakeholder, with Oman Shipping and Mitsui OSK Lines (MOL), in the vessel lifting this volume.
Itochu worked with MOL to order three LNG carriers for charter to Hyproc to transport Algerian gas. The complement comprises a 2004-built, 145,000m³ vessel and two medmax ships of 75,000m³ delivered in 2007 and 2008.
Trading house transport departments’ shipping technology teams deploy many skills to safeguard their company’s interests and those of the LNG supply chain they serve. Their expertise covers vessel design, construction and equipment, LNG loading/unloading operations, LNG quality analysis and operation and maintenance of LNG carriers.
Following the March 2011 earthquake and tsunami in Japan, there was an escalation of short to medium-term LNG purchase contracts and spot deals. This made more frequent – and more diverse demands – on in-house technical skill sets than before.
Trading house shipping services to LNG customers, ranging from ship/shore compatibility studies to customs handling, now encompass wide cross-sections of ships and terminals and accommodate the industry shift towards more relaxed contractual terms governing cargo destinations.
Mitsubishi is a case in point. Its technical staff have joined the LNGC design teams investigating propulsion system options such as ultra-steam turbines (USTs) and steam turbine and dual-fuel gas engines (STaGE) and the Sayaendo and Sayaringo continuous deck-cover variations of the Moss spherical tank containment system.
These new technologies have been accepted by the industry, not least for several of the newbuildings to be employed in lifting Cameron cargoes.
Mitsubishi, with Engie and NYK, is a founder member of Gas4Sea, an entity promoting LNG as marine fuel and which has just put the world’s first purpose-built LNG bunker tanker into service. The partners plan to expand their Gas4Sea LNG bunkering services worldwide and Mitsubishi engineers are amongst the group’s experts studying new vessel designs.
The inherent technical and commercial capabilities of the Japanese trading houses ensure their growing presence in both small-scale and conventional-size LNG carriers.
Although the extent to which they will take ships on long-term charters depends on individual circumstances, Mitsubishi and Mitsui & Co will show how vessel hires for gas purchasers can enhance the bottom line.