Chevron and Tohoku Electric Sign 20-Year Wheatstone LNG Agreement

Chevron and Tohoku Electric Sign 20-Year Wheatstone LNG Agreement
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Τρι, 1 Οκτωβρίου 2013 - 18:23
Japanese utility Tohoku Electric Power Co. (9506.TO) has committed to a 20-year deal to buy more liquefied natural gas from Australia, reinforcing the country's position as the biggest supplier to the largest user of LNG at a time Japan is debating whether to resume nuclear power production.
Japanese utility Tohoku Electric Power Co. (9506.TO) has committed to a 20-year deal to buy more liquefied natural gas from Australia , reinforcing the country's position as the biggest supplier to the largest user of LNG at a time Japan is debating whether to resume nuclear power production.

Chevron Corp. (CVX), in announcing agreements for it and its partners in the Wheatstone LNG project in Western Australia to supply Tohoku Electric with 0.9 million metric tons of LNG annually, said the deal meant that 85% of its LNG equity in the venture was now committed to Asian customers on a long-term basis.

Confirmation of the deal, which follows a preliminary pact 16 months ago, comes as Chevron faces intense cost pressures in
Australia and potential competition in the Asian market from LNG projects in North America and East Africa . Last December, California-based Chevron revealed a 21% cost overrun to 52 billion Australian dollars at its Gorgon LNG project.

Chevron has a 64.1% stake in the US$29 billion Wheatstone gas-export project, which is due to ship its first LNG in 2016. Minority partners include Apache Corp. (APA) with 13% and Kuwait Foreign Petroleum Exploration Co. with 7%.

" These agreements [with Tohoku Electric], combined with our ongoing exploration success, demonstrate that our Wheatstone and Gorgon projects in
Australia are well-placed to meet the growing demand for natural gas in the Asia-Pacific region," said Chevron Australia Managing Director Roy Krzywosinski, in a press release.

Seven terminals currently being built should allow
Australia to overtake Qatar as the world's biggest LNG exporter by 2018.

Nuclear power provided Japan with 30% of its energy before the March 2011 earthquake and tsunami which has resulted in all of its reactors now being off-line, and a sharp spike in LNG imports to compensate for this. About 40% of Japan's energy is now generated from LNG.

Japan imported 11.6 million tons of Australian LNG in the first eight months of 2013, nearly 21% up on-year, with this accounting for 20% of its total LNG imports. Supplies from second-ranked Qatar and third-placed Malaysia fell slightly over the same period.

In September, Japan and India said they planned to set up a multilateral group of LNG buyers whose aims would include pushing for lower LNG prices in Asia, where most LNG is bought under long-term contracts linked to the cost of crude-oil and is as much as five times more expensive than spot market natural gas sold in the U.S.

Chevron did not provide any details of the pricing formula used in the supply contract with Tohoku Electric. In March, Chevron chief executive John Watson said that given the large capital requirements and long construction lead times, companies involved in LNG projects required a fair return and that this "will necessitate long-term purchase contracts with robust underlying LNG prices."

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