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Bloomberg: Japan Faces $3.5 Billion Increase in LNG Import Bill (Update3)

By Angela Macdonald-Smith and Shigeru Sato

Feb. 20 (Bloomberg) — Japanese importers of liquefied natural gas may have to pay an extra $3.5 billion to suppliers after fuel prices rose more than expected the past four years, said an official involved in the contract talks.

Tokyo Electric Power Co. set aside $371 million to cover the higher costs for the year ending March 31. Osaka Gas Co. spokesman Toru Kinukawa said the utility may owe money to suppliers. Australia’s North West Shelf LNG venture is negotiating higher prices with customers, operator Woodside Petroleum Ltd. said.

Fuel costs already exceed limits set in gas contracts, said the official, who asked not to be named because of confidentiality agreements. The price for Japan’s LNG imports is rising at the fastest pace in at least eight years, according to data compiled by Bloomberg. The estimated increase would be 38 percent of last year’s profits for Japan’s biggest utilities.

“These companies will have to pay,” Cecile Jovene, the head of the natural gas group at Facts Inc., whose 50 clients include most of the top 10 oil companies, said in a telephone interview from Singapore. “The pricing situation is not improving.”

LNG, natural gas that has been chilled into liquid for transportation by ship, is typically linked to the average cost of a barrel of oil imported by Japan, known as the Japan Crude Cocktail. The benchmark was at $90.66 a barrel in December. Japan is the world’s biggest importer of the fuel.

`Hard Line’

“The sellers are taking a hard line against us,” Tokyo Electric Managing Director Masaru Takei said Jan. 30. “LNG supplies are tight.”

Royal Dutch Shell Plc, Exxon Mobil Corp. and their partners in Australia, Abu Dhabi, Brunei, Qatar and Malaysia are the biggest suppliers to Japan.

Tokyo Electric, Asia’s biggest utility, cut its earnings forecast on Jan. 30 and set aside 40 billion yen ($371 million) for additional LNG costs this fiscal year.

Australia’s North West Shelf venture — owned by Woodside, Melbourne-based BHP Billiton Ltd., The Hague-based Shell, London-based BP Plc, San Ramon, California-based Chevron Corp. and a joint venture between Tokyo-based Mitsubishi Corp. and Mitsui & Co. — is negotiating with the utilities to raise prices for past and future LNG deliveries.

“LNG is a valuable commodity that people desire and at the end of the day the prices recognize the general increase in crude prices,” Woodside Chief Executive Officer Don Voelte said today in an interview with Bloomberg. “I won’t be able to give you specifically the price increases but it’s in the general incline of the rest of the commodities.”

Shares Decline

Tokyo Electric, Osaka Gas, Tokyo Gas Co., Chubu Electric Power Co., Kansai Electric Power Co., Toho Gas Co., Chugoku Electric Power Co. and Tohoku Electric Power Co. have a contract for about 7.33 million metric tons a year of North West Shelf LNG until March 2009, said Roger Martin, a spokesman for Woodside, declining to give price details.

Tokyo Electric’s shares fell 1.6 percent to close at 2,725 yen a share in Tokyo, while Tokyo Gas dropped 2.2 percent to 485 yen and Kansai Electric fell 2.6 percent to 2,600 yen. Woodside shares gained A$2.33, or 4.6 percent, to A$53.59 in Sydney.

The North West Shelf’s prices are increasing, Perth-based Woodside’s fourth-quarter production report said Jan. 17, without giving specifics.

“An adjusted amount can be generated depending on the contract price over which we are holding talks with Australian suppliers,” Osaka Gas’s Kinukawa said in a Jan. 17 interview from Osaka City. “If any, we should deal with it properly.”

No Comments

Tokyo Gas spokesman Naoyoshi Oogake, Kansai Electric’s Ryuichi Suehiro in Osaka and Toho Gas’s Takahisa Nakagami and Chubu Electric’s Hirotaka Iwase in Nagoya City said they can’t comment.

Chugoku Electric “cannot comment on this as we are currently negotiating with the Australian supplier, also the Qatar project, about contracts,” said Osamu Ueno at the Hiroshima-based company’s investor relations department.

“We’ve posted some additional costs for LNG imports in the past two business years, but they are much less than the 40 billion yen recorded for the period from October last year until March,” Tokyo Electric spokesman Akitsuka Kobayashi said Feb. 14.

The 17 utilities in the Tokyo Stock Exchange’s Topix Electric Power and Gas index had combined net income of 988 billion yen in the last fiscal year, ended March 31, 2007, according to Bloomberg data.

Contract Limits

Until 2004, the limit for the contract with Australia’s North West Shelf was $29 a barrel of oil, or about $5 per million British thermal units for LNG, the official involved in the talks said. The talks to increase prices began last year and the sides provisionally agreed to raise the maximum to $63 a barrel, potentially doubling the LNG price. The top price may be set as high as $80 a barrel, said the official involved in the talks.

Japan paid record prices for LNG in November from Australia, Brunei, Malaysia and Indonesia, according to data from LNG Japan Corp. Japan’s average price paid for Australian LNG jumped to $9.02 per million British thermal units in November, from $8.63 in October and $6.49 in September, according to the data.

In 2007, Japan’s LNG imports increased 7.4 percent to 66.8 million tons from a year earlier, according to a trade report compiled last month by the finance ministry. The country’s gas imports by value totaled 3.14 trillion yen, up 18 percent.

To contact the reporters on this story: Angela Macdonald-Smith in Sydney at [email protected] ; Shigeru Sato in Tokyo at [email protected]

Last Updated: February 20, 2008 01:31 EST

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