Tokyo Gas posts 21% gas sales drop in April-June, to boost US shale output

Tokyo — Tokyo Gas posted July 29 a 21.2% drop in its total city gas sales to 2.656 Bcm during April-June, with the Japanese utility exercising LNG contractual flexibilities to balance its supply amid the coronavirus pandemic.

The April-June city gas sales dropped as its sales to businesses and industrial plants plunged 32% from a year ago to 1.456 Bcm as some businesses suspended work during the state of emergency over April 7-May 25.

Its city gas sales to households, however, increased 1.4% year on year to 819 million cu m in the quarter as many consumers stayed home during the state of emergency.

In the face of lower city gas demand, Tokyo Gas has been exercising its LNG contractual flexibilities such as downward quantity tolerance, diverting its destination-free cargoes, a company spokesman said.

Tokyo Gas currently procures about 14 million mt/year of LNG.

The reduced city gas sales led a 53.2% year-on-year drop in its April-June net profit to Yen 16.354 billion ($155.73 million), with its revenue also sliding 11% from a year ago to Yen 415.65 million.

US shale

In a separate development, Tokyo Gas said July 29 it will also significantly boost its shale gas production in Texas by acquiring additional stakes in Castleton Resources to about 70%, up from 46%, marking its first acquisition of an operator in the shale gas business in the US.

As a result of the acquisition, due to close August 14, Tokyo Gas' equity gas and natural gas liquids production volume held by Castleton Resources will increase by about 1.6 times to 473 MMcf/d, or 13 million cu m/d of gas equivalent, from about 296 MMcf/d.

Castleton Resources owns acreage in East Texas and North Louisiana targeting the Haynesville and Cotton Valley formations. Haynesville is one of the top three producing shale formations in the US, the other two being Marcellus/Utica and the Permian.

The Tokyo Gas spokesman said the company's equity production via Castleton Resources will be sold in the US gas market. Castleton Resources will be renamed to TG Natural Resources LLC by late March 2021. Tokyo Gas has been raising its stake in Castleton Resources since its acquisition of a 30% stake in 2017.

The US shale sector has been severely impacted by the crash in oil prices and the global pandemic in 2020, resulting in capex cuts, reductions in fracking crews and slowing down of drilling activity, with widespread well curtailments, shut-ins and bankruptcies.

But earlier in July, Chevron surprised the market with the acquisition of Houston-based oil and gas exploration and production company Noble Energy for $5 billion. The deal was worth roughly $13 billion, including debt. This was the first large scale transaction in the oil sector since the pandemic began and underscored how valuations have dropped sufficiently to make assets attractive.

Tokyo Gas also said July 29 it has acquired the 500MWac/631MWdc Aktina Solar Project in Texas, which is scheduled to start gradual commercial operations from mid-2021. This will bring the company's total equity renewable energy capacity it owns or is under contract to acquire in Japan and abroad to exceed 1,200 MWdc.