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Tokyo Gas signs initial pact with Diamond Gas to buy LNG Canada's output

Singapore — Japanese utility Tokyo Gas Tuesday said it has signed a heads of agreement with Diamond Gas International, the trading arm of Mitsubishi Corporation, to purchase 0.6 million mt/year of LNG from the Shell-operated LNG Canada project.

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LNG Canada, which reached a final investment decision to proceed last week, will have an initial capacity of 14 million mt/year. Shell has a 40% stake in LNG Canada through it local affiliate, Petronas has a 25% interest, PetroChina has 15%, Mitsubishi has 15% and Kogas has 5%. Each partner is expected to individually market its own share of LNG.

Of the total volume of 14 million mt/year, Diamond Gas will offtake 2.1 million mt/year, Tokyo Gas said.

Under the HOA, Tokyo Gas will purchase up to 0.6 million mt/year from LNG Canada for a period of 13 years from April 2026 to March 2039, delivered on an ex-ship basis with destination flexibility, Tokyo Gas added.

An HOA is a non-binding document which is negotiated in the run-up to a final agreement between parties.

Tokyo Gas said it already has an agreement with Diamond Gas to purchase 0.2 million mt/year of LNG, which equals three cargoes a year, from the Cameron LNG Project in the US, for a period of 19 years starting in 2020 on an ex-ship basis.

Singapore-based Diamond Gas started operations in September 2013 to market LNG from projects in the US and Canada where Mitsubishi has equity stakes, conduct short-term LNG trading and optimization, and develop new gas business in emerging markets.

Tokyo Gas said its preliminary agreement with Diamond Gas contributes to the starting up of the very first large-scale LNG production project in Canada. LNG Canada will initially have two processing units or trains, with the first LNG cargo expected before the middle of the next decade.

"On top of the access to abundant natural gas in Canada, the proximity of the project to Japan which allows the shipment to take only about 10 days, promises a stable long-term supply of LNG," Tokyo Gas said.

-- Eric Yep, newsdesk@spglobal.com

-- Edited by Norazlina Jumaat, newsdesk@spglobal.com