Japan says no to destination clause for new LNG contracts

The Japanese Fair Trade Commission on Wednesday said that all new contracts for liquefied natural gas (LNG) must not contain restrictions on the resale of cargoes after it completed a formal investigation into the destination clauses.

The anti-monopoly regulator late last year ordered Japan’s LNG buyers to provide details on contract requirements, preventing the reselling of LNG to third parties.

“…when LNG sellers conclude a new contract or revise a contract after the expiration, LNG sellers (including sellers who were users) should not provide competition-restraining clauses nor take business practices which lead to the restrictions of resale and so on,” the FTC said.

“Also, as for the existing contracts before the expiration, LNG sellers, at least, should review competition-restraining business practices which lead to restrictions of resale and so on,” it said.

The long-awaited ruling could result in more trading of cargoes by buyers in Japan, the world’s largest LNG importer. It could also have a big impact for other LNG buyers elsewhere in Asia.

LNG buyers have been for years urging the need for more flexible LNG contracts, especially when it comes to destination clauses that restrict them from reselling or swapping cargoes.

LNG importing giants such as Japan’s JERA, South Korea’s Kogas and China’s CNOOC have joined forces to secure more flexible contracts.

However, many producers have already responded to the issue offering contracts without resale or destination restrictions.

Japan’s FTC added it would keep monitoring the LNG market and would take “strict actions” against any violations of the countty’s Antimonopoly Act.

LNG World News Staff