Japan's Jera is calling for more flexible terms in long-term LNG contracts as the country faces a significant reduction in LNG demand because of Covid-19 and uncertainty over future demand levels as gas and power markets evolve. Jera is the world's largest buyer of LNG.
The current situation of reduced demand and oversupply highlights the importance of greater flexibility and tradeability in long-term contracts. Japanese buyers are already "heavily burdened" with demand uncertainty, following the deregulation of the country's gas and power markets that has left some buyers overcommitted.
Japan's LNG imports in May fell by 18.9 percent from a year earlier and by 12 percent against April to 4.5mn t. Both power and gas utilities continue to struggle with mounting deliveries, with several still in negotiations with suppliers to defer cargoes until the very end of the year or reduce their contracted offtake.
Japanese buyers have been pushing for more contract flexibility in recent years, including the removal of destination restriction clauses. This would allow them to freely sell cargoes in the event they are unable to receive them. Destination restrictions in a contract typically require a buyer to receive a cargo at a specified receiving terminal or a specified geographical area.
