Petronas to observe Japan ruling on LNG destination clause, reports Nikkei

Petronas CEO Datuk Wan Zulkiflee Wan Ariffin speaks during an interview at his office in Kuala Lumpur August 15, 2017. — Reuters pic
Petronas CEO Datuk Wan Zulkiflee Wan Ariffin speaks during an interview at his office in Kuala Lumpur August 15, 2017. — Reuters pic

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TOKYO, Nov 1 — The top executive of Petroliam Nasional Berhad, or Petronas, said the Malaysian state energy firm “will observe” a ruling by Japanese regulators that sellers of liquefied natural gas (LNG) should not force restrictions on reselling LNG cargoes, the Nikkei business daily said today.

Japan's Fair Trade Commission (FTC) ruled in late June that new long-term LNG contracts signed with Japanese buyers could not have destination restrictions — clauses that mandate where a cargo can be delivered and limit buyers from reselling excess gas.

Petronas has said the world's third-biggest LNG exporter is open to shorter-term LNG contracts and smaller cargo sizes to entice buyers.

“We intend to do our best to observe the recommendations of JTFC,” the paper quoted Petronas Chief Executive Officer Datuk Wan Zulkiflee Wan Ariffin as saying in Tokyo yesterday.

Malaysia ranked second after Australia in Japan's LNG import volumes last year, supplying over 15 million tonnes to the world's top LNG buyer, Japan's Ministry of Finance data showed.

Nikkei added Wan Zulkiflee implied that prices would be higher for contracts with no resale restrictions to third parties.

The comments are likely to make Petronas' LNG supplies more appealing at a time when Japanese buyers are in talks to renew the contracts with the Middle East producers.

Petronas last month signed a three-year LNG supply agreement with JERA Co, the fuel purchasing joint venture between Tokyo Electric Power and Chubu Electric Power. That is a shorter period than Petronas' previous long-term deal with the biggest LNG buyer in Japan, with terms that were in compliance with the FTC's ruling.

Meanwhile the president of Japan's No. 2 city gas seller Osaka Gas, Takehiro Honjo, said today the Petronas CEO's comments suggest the company is trying to stoke buyers' interests in Malaysian supplies.

“Petronas President's comment is a big deal for our company and for the industry,” Honjo told Reuters, speaking on the sidelines of a news conference.

However, some buyers would take issue with a variety of sellers' requests to make concessions in return for removing destination constraints.

“That includes a request to raise prices,” JERA's senior executive vice president Hiroki Sato told Reuters in July.

“But FTC takes a legal approach and it's not commercial. So if there were sellers to make that demand, they do not understand FTC's guidance at all.” — Reuters

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