Japan's JERA takes 25.7% stake in US Freeport LNG, expects extra 820,000 mt/year equity access

Japan's largest power generation company JERA said Nov. 15 it has concluded an agreement to take a 25.7% stake in Freeport LNG Development, or FLNG, under which it expects to get equity access to 820,000 mt/year of supply capacity from the US Freeport LNG project as part of its efforts to ensure supply to Japan during emergencies.

JERA's expansion of its holding is aimed at ensuring LNG supply to Japan amid a tight market outlook in Asia over the next few years as well as for expected LNG demand growth in the region, JERA Americas Holdings Chief Strategy Officer Izumi Kai told an online press briefing.

"While we are looking at expected LNG demand growth in Asia in the future, of course we are also targeting to get easier access to surplus LNG cargoes, including for our response to emergencies, amid tight [supply] outlooks for Japan and Asia for this year and the next [few years]," Kai said.

The move comes at a time when Japanese power utilities are working to ensure LNG supply for the upcoming winter. Japan experienced power shortages last winter as demand surged during extreme cold spells in January, with local utilities forced to restrict gas-fired power generation due to low LNG stocks.

"While there is a possibility of tightening supply and demand in the future, we believe it is important to absolutely secure volumes in such situations," Kai said. "For instance, we could be in a situation where it is difficult to secure spot cargoes in Asia and Oceania like in the past few months, when a lot of US supplies headed to Europe and Asia," he said.

The company will acquire the 25.7% stake in FLNG held by infrastructure fund Global Infrastructure Partners for $2.5 billion, which will give it access to the entire Freeport LNG project. The Texas-based project currently has three trains with a total capacity of around 15.45 million mt/year.

Image Courtesy of Freeport LNG Development.

JERA already has a 25% stake in the FLNG Train 1 and procures 2.32 million mt/year of LNG from the Freeport LNG project.

Following necessary approvals and authorization procedures to complete in early 2022, JERA will also work with FLNG to advance new LNG projects, including production capacity expansion and the development of Train 4.

Train 4 is currently planned to have a capacity of 5.35 million mt/year and reach a final investment decision in 2022, giving JERA an equity access of 1.37 million mt/year based on its 25.7% stake in FLNG, which has 100% of the planned train, Kai said.

Train 4 is expected to start up in the early second half of the 2020s if the FID is sanctioned as scheduled in the next year, Kai said.

Following the deal, JERA also expects to get additional equity access of 820,000 mt/year of Freeport LNG supply capacity from the unsold 13% of output not bound for long-term supply contracts from the existing three trains and an increase of 3 million mt/year production capacity at the three trains from revamp works in 2022, Kai said.