Sumitomo, Tokyo Gas Sign HoA with Cove Point LNG (USA)

Sumitomo Corporation and Tokyo Gas Co., jointly announced today, after extensive discussion since April 2012 with Dominion Cove Point LNG, the operator of the Cove Point LNG Project in Maryland USA, that a Terminal Service Agreement and a Heads of Agreement for Sale and Purchase with respect to the Project has been executed.

Sumitomo, through Pacific Summit Energy LLC, a wholly owned subsidiary has signed the Terminal Service Agreement with Dominion for the liquefaction service to liquefy natural gas to LNG, the volume equivalent to approximately 2.3 mtpa, for export.

Tokyo Gas has established a wholly owned subsidiary, TG PLUS Co., Ltd. on February 28th, 2013 which has entered into a heads of agreement with Sumitomo for the sale and purchase of a volume of 1.4 mtpa of LNG. It is expected that Tokyo Gas will be entering into a LNG sale and purchase agreement with TG PLUS to import LNG to Japan.

Sumitomo and Tokyo Gas will further investigate the possibility of establishing a joint venture vehicle to implement the TSA which has been agreed between PSE and Dominion.

Sumitomo has succeeded in marketing the full amount of LNG (approximately 2.3mtpa) from the Project.

The Project will involve the construction of a new natural gas liquefaction facility at the existing Cove Point LNG Terminal currently in operation as a LNG receiving terminal, to export LNG produced from domestic natural gas (including shale gas). The contracted quantity for the liquefaction service of the Project is estimated to be approximately 4.6 mtpa.

After several processes such as issuance of an authorization granted from the U.S. Department of Energy to export LNG to non-FTA countries, the Project will aim to start operation from 2017.

Sumitomo currently holds assets and is involved in three shale gas/tight oil operations in the USA, and also, through PSE, operates natural gas trading business in the USA. Sumitomo is planning to expand business in the fast growing unconventional energy industry with various approaches, and this Project matches with that strategy.

Once the Project starts its operation, it will enable Sumitomo to be involved in all gas-related business segments across the value chain from shale gas upstream development, natural gas aggregation, transportation and liquefaction, to LNG export. Sumitomo will endeavor to realize this value chain to export LNG from the USA, the world’s largest natural gas producer, to take part in achieving greater energy security for Japan.

Tokyo Gas, in its long-term corporate strategy “Challenge 2020 Vision,” is exploring the diversification and expansion of raw materials procurement, including unconventional LNG, across the globe as well as expanding its overseas LNG value chain initiatives to reduce the cost of raw materials.

LNG prices under the LNG HoA will be based upon a Henry Hub index linked formula, the first definitive long-term gas hub linked contract for Tokyo Gas. Tokyo Gas will endeavor to achieve a higher level of transparency of LNG pricing, and stability of supply of LNG, by leveraging its vast experience gained over the years, through procurement of LNG from a multitude of projects and through LNG terminal operations.

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LNG World News Staff, April 01, 2013; Image: Dominion