Japanese Firms Strike Natural-Gas Agreements With Oman and America

Japanese companies have reached deals with Omani and U.S. producers for mid- to long-term natural-gas supplies, a move to secure the fuel after Russia's invasion of Ukraine caused turmoil this year.

The deals underscore the continued importance of reliable producers of liquefied natural gas (LNG), including the United States. Japan is one of the world's largest importers of LNG, along with China, and relies on the fuel for nearly 40 percent of its electricity production.

Japan continues to import LNG from Russia, which supplied 8.8% of its needs in 2021. However, the Tokyo trading companies involved in the business have taken write-downs out of concerns that international sanctions or other issues could cut off the flow. Russia has already turned off the taps of its biggest natural-gas pipeline to Europe.

Itochu Corp., ITOCY -0.79%, is a Japanese company that is involved in a variety of businesses, including textiles, machinery, metals, chemicals, food, and energy. The company has a long history, dating back to 1858, and has a strong presence in both Japan and overseas.

Mitsui's stock price is down 0.75%.

Two Japanese companies have agreed to purchase a total of more than two million tons of LNG annually from Oman starting in 2025, an official of the Ministry of Economy, Trade and Industry said Tuesday. The official said Japan aimed to lift its procurement from Oman to three million tons annually pending talks involving additional companies.

Itochu and Mitsui have both confirmed that they are in talks with Oman, but they have declined to give any further details. Jera has agreed to import 800,000 tons of LNG from Oman annually for 10 years, starting in 2025.

Oman is already a supplier to Itochu and other Japanese customers. However, many of Oman’s contracts are set to expire in 2024 or 2025. As a result, competition is heating up for its supplies. One reason for this is that tankers departing from Oman don’t need to pass through the Strait of Hormuz, which is a frequent hot spot for tensions involving Iran.

Inpex Corp., based in Tokyo, has announced that it will purchase one million tons of LNG annually for 20 years from an export plant in Cameron Parish, Louisiana, which is currently under development by Venture Global LNG. Construction on the plant is set to begin next year. In addition to this supply agreement with Inpex Corp., Venture Global LNG also has a supply deal with a German customer, EnBW Energie Baden-Württemberg AG, which is seeking to reduce its dependence on Russia.

The Japanese companies did not disclose the financial terms of the Oman and U.S. deals. According to government figures, in the first half of 2022, Japan imported 37.5 million tons of LNG and paid the equivalent of about $27 billion.

Japan has typically preferred to procure LNG on a long-term basis, which earned it criticism a few years ago when the fuel was cheaply available on the spot market. However, this strategy has paid off this winter, when other nations are trying to secure high-price spot supplies.

Inpex, a company that is 20% owned by the Japanese government, said that it was buying LNG from the United States for the first time. The company currently gets most of its LNG from an offshore field that it operates in Australia, but it is aiming to raise its annual sourcing of LNG to 10 million tons by 2030.

Although Japan has pledged to achieve carbon neutrality by 2050, a spokeswoman for Inpex said the company believes there will still be demand for LNG (a fossil fuel) for some time to come. “We need to contribute to stable supplies,” she said.

The METI official said some companies were looking for terms shorter than 20 to 25 years to avoid brushing up against the 2050 deadline. This is especially true for companies with contracts in Oman.