Japan’s JERA and EDF Trading have struck a deal to work together on LNG trading, folding both companies’ interests into their joint venture JERA Trading Singapore (JERAT). Announcing the agreement on July 3, JERA noted this followed JERAT’s acquisition of EDF Trading’s coal business in April 2017.
This latest deal should close by early 2019, after which JERA Trading will be known as JERA Global Markets. JERA and EDF Trading revealed talks on a potential LNG link-up in December 2017.
Explaining the decision, JERA said Europe had become a “key balancing market for excess global LNG”. This comes as demand in Japan is increasingly variable, it said, and US production is ramping up. The two companies believe that the new venture will allow a more liquid market to be established and, eventually, a “clear pricing signal” for Asia. Japan’s LNG imports are declining, although the country remains the leading market for the feedstock.
Both companies bring strengths to the partnership, it said. Where JERA has been focused on developing flexible supplies, driven by a recognition of the rising contribution from renewables, EDF Trading has a third-party trading business and access to markets around Europe. Furthermore, EDF Trading is one of the largest financial JKM traders, the statement said.
JERA has a 66.67% stake in JERAT, via JERA Trading International, while EDF Trading owns 33.33%. The two owners will have joint responsibility and control of the new business, with both providing two executive directors. JERA will appoint the CEO of JERA Global Markets. The company will manage JERA and EDF Trading’s short and mid-term LNG activity. The deal will bring “more flexibility and scale” to both companies, “without affecting JERA’s and EDF’s long-term procurement activities”.
In particular, EDF Trading North America will become responsible for providing electricity and gas for JERA at the Freeport liquefaction plant. Furthermore, EDF Trading will be the “exclusive market interface” for JERA Global Markets in Europe’s natural gas markets.
“LNG is an important fuel for EDF and this joint venture will combine EDFT’s wholesale market optimisation capabilities with JERA’s offtake volumes,” said EDF Trading’s CEO, John Rittenhouse. “This is another important step in our relationship with JERA, which started in 2005 and has significantly grown over the years.”
JERA was established as a joint venture by Tokyo Electric Power Co. (TEPCO) and Chubu Electric Power in 2015. JERA is the world’s largest single buyer of LNG, taking around 35 million tonnes.
The Japanese venture and the European company have worked together on managing LNG fluctuations. In May 2016, JERA and EDF Trading struck a sales and purchase agreement (SPA) covering up to 1.5 million tonnes at European terminals over two and a half years. The arrangement was due to begin in June 2018.
Explaining the move at the time, JERA said it would provide the flexibility needed to handle demand fluctuations “and also expand the opportunity for LNG trading business toward the future”.
The agreement covering JERAT’s acquisition of EDF Trading’s coal business was also struck in 2016. JERAT acquired a stake in the Narrabi coal mine in Australia and a share in Amstuw, which operates the Rietlanden coal terminal in Singapore.
The JERA Global Markets deal has some similarities with an agreement made by Tokyo Gas and Centrica LNG in June. The two companies agreed to act as long-term co-purchasers of LNG from Mozambique. The joint procurement agreement, which was a first, was intended to take advantage of East Africa’s central location and demand fluctuations in Europe and Asia.
Europe has typically been seen in the LNG sector as a “market of last resort”. As the continent moves away from coal, though, gas use is rising. LNG provides some counterbalance to Russian gas supplies, which met 43% of Europe’s gas needs in the last quarter of 2017.