Japan's Hokkaido Gas in talks with JERA for LNG supply from 2027: sources

Japan's Hokkaido Gas is negotiating with JERA to buy LNG cargoes from April 2027, market sources said in the week of Aug. 25-29.

Hokkaido Gas issued a tender to buy two to four cargoes per year for seven years starting from April 2027. The first round of the tender was closed on March 4.

Market sources said the buyer has selected only JERA after a few rounds of shortlisting.

Both Hokkaido Gas and JERA declined to comment when reached out by Platts, part of S&P Global Energy.

Sources said Hokkaido Gas plans to buy two or three cargoes for the first two years and three or four cargoes for the remaining contract years. The price is linked to Brent crude.

Hokkaido Gas' demand peaks in winter, with more than half of the cargoes delivered during this period (October-March), sources said.

Market sources said that the price level Hokkaido Gas and JERA are negotiating is a 12.7%-12.8% slope to Brent, which is considered competitive, given that Hokkaido Gas is purchasing more winter cargoes. Japan's current term contracts are about 13.5%-14% slope to crude oil, according to industry sources.

Hokkaido is expected to see demand growth, while Japan's overall LNG demand is likely to decline. In the Hokkaido region, industry users are switching from coal to gas, contributing to demand growth, market sources said.

In May 2024, Hokkaido Gas signed a long-term supply and purchase agreement with Australia's Santos. The agreement will supply up to nearly 400,000 mt/year of LNG for 10 years, starting in 2027, on a delivered ex-ship basis. Market sources stated that the contract is likely linked to Japan's LNG import prices released by the finance ministry.

Hokkaido Gas sold 647.2 million cu m of gas in the fiscal year 2024-2025 (April-March), up 0.3% year-over-year, according to the company.

Apart from Hokkaido Gas, some other Japanese utilities are looking for new term contracts as they expect existing contracts to expire in several years, market sources said.

Platts assessed the October JKM at $11.001/MMBtu on Aug. 28, and the JKM balance-month next-day derivatives at $10.975/MMBtu.