As $21 Billion Gas Market Opens, Japan Seeks Strength in Numbers

In the increasingly competitive world of Japan’s energy market, there may be safety in numbers.

Gas sellers from the nation’s smaller utilities to even its biggest oil refiner are considering clubbing together to get cheaper fuel from their suppliers and help them undercut competitors in the 2.4 trillion yen ($21 billion) retail gas market, which the country is opening to new players in April. Tokyo Gas Co., the country’s largest gas utility by market capitalization, has said it sees more than a dozen Japanese LNG importers possibly joining into three large partnerships to secure cheaper fuel through greater bargaining power.

“We are considering various alliances,” said Tsutomu Sugimori, the president of JX Nippon Oil & Energy Corp., the oil refiner that aims to expand its power and gas business. “Everyone who buys natural gas feels the same way. We want to get together as much as possible and buy cheap fuel.”

The opening of the retail gas market of more than 26 million customers follows a similar move in electricity last April as part of Prime Minister Shinzo Abe’s drive to spur competition and drive down prices. The liberalization, coming decades behind efforts in Europe and the U.S., is forcing entrenched monopolies to face new competition from both traditional suppliers and new entrants.

Japan’s natural gas users burn supplies that come almost entirely from overseas shipments of LNG, a super-cooled form of the gas that’s transported on tankers. As the world’s biggest buyer, Japan locks up shipments from across the planet, including sellers from Australia and Qatar to Nigeria and the U.S.

In the increasingly competitive environment for customers at home, cooperation on fuel procurement to source cheaper supplies overseas will become necessary, according Mikiko Tate, a senior analyst at Sumitomo Corporation Global Research Co.

“They will need alliances to survive,” Tate said.

Jera the Giant

Japan’s biggest power producers are already ahead of the game. Tokyo Electric Power Co. Holdings Inc. and Chubu Electric Power Co. integrated their fuel-procurement operations last year into a joint venture, Jera Co., forming the world’s biggest LNG buyer. Tokyo Electric next plans to enter the retail gas market in July, Tomoaki Kobayakawa, head of its retail unit, said last month.

Smaller players are taking initial steps at following the giants’ lead. Tokyo Gas is considering cooperating with Kansai Electric Power Co., Japan’s second-biggest power utility, in areas including fuel procurement and development of power plants, the companies said in April last year.

“Economies of scale in the gas industry work in upstream and procurement, so it’s highly likely there will be more alliances like Jera,” Tokyo Gas President Michiaki Hirose said last month. “We will make an effort to be among those forming the groups.”

Once Unthinkable

JX Energy, a unit of JX Holdings Inc., is looking to team up with the owner of an LNG terminal near Tokyo, where imports are dominated by Tokyo Electric and Tokyo Gas, Sugimori said in a Jan. 12 interview, declining to identify the potential partner. This would grant JX Energy access to infrastructure in the area that’s crucial to receive and deliver gas to its end users, he said.

Small regional power and gas utilities, which have enjoyed near-monopolies, may also need to team up. Saibu Gas Co., which supplies part of Japan’s southern island of Kyushu, sees Japan’s LNG buyers facing a new world where size will dominate.

“Any type of alliance is possible,” Saibu Gas Chairman Yuji Tanaka said Jan. 12. “Even things that are unthinkable now may happen.”

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