Osaka Gas To Secure Additional LNG To Ensure Constant Supply

Osaka Gas Co Ltd in Japan plans to secure more liquefied natural gas (LNG) than usual in the fiscal year beginning in April to ensure a stable supply of the fuel as global supply is expected to remain tight, according to its president on Wednesday.

The city gas provider is a major buyer of the super-chilled fuel in the country.

Spot LNG prices skyrocketed last year in the aftermath of Russia's invasion of Ukraine, as European buyers sought large volumes to replace Russian pipeline natural gas, but they've been trending lower since mid-December due to a milder-than-usual European winter.

"Still, we see a risk of the prices surging again sometime in the next financial year amid tight global supply as Europe moves further away from Russian gas," Osaka Gas President Masataka Fujiwara told reporters.

He also warned that supply disruptions could occur as a result of problems such as the fire at the US Freeport LNG facility and a pipeline leak at Malaysia LNG last year.

When spot prices were lower in the past, Osaka Gas would take a slightly short position and buy extra supply from the spot market in the event of a shortage. However, due to higher prices and the risk of supply disruption, it now intends to hold a slightly longer position.

"We made a procurement plan with a margin because causing a supply shortage is the worst thing that could happen," Fujiwara explained.

LNG buyers can exercise a contract clause known as Upward Quantity Tolerance (UQT), which is typically a flexibility embedded in long-term contracts that allows buyers to request 5% to 10% more volumes.

Osaka Gas intends to capitalise on the flexibility.

The LNG contract signed by Osaka Gas, JERA, and Tokyo Gas to buy 3.4 million tonnes per year from Brunei for ten years beginning in April 2013 is set to expire this month.

Osaka Gas declined to comment on whether the contract would be extended.