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India approves MOC with Japan to facilitate global LNG flexibility

Singapore (Platts)--12 Oct 2017 752 am EDT/1152 GMT


The Indian government has approved the signing of a memorandum of cooperation with Japan to facilitate flexibility in LNG contracts, abolish destination restriction clauses and establish reliable LNG spot price indices.

This will be Japan's second such agreement this year, as the world's largest LNG importer enters the second phase of its LNG market liberalization campaign, aimed at increasing cooperation with global LNG stakeholders to promote liquidity, flexibility and transparency in the LNG markets.

Japan and the EU signed another agreement in July, under which both parties agreed to cooperate to phase out territorial restrictions on resales, already illegal under the EU's competition law.

The Japan Fair Trade Commission ruled in June that LNG destination clauses were likely anti-competitive. The finding benefits large buyers faced with a combination of contractual surplus and downstream deregulation, and could lead to significant volumes of LNG bursting on to the markets.

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JAPAN GLOBAL OUTREACH


The first phase of Japan's LNG liberalization saw it open up its domestic power and gas retail sectors in April 2016 and April 2017 respectively.

Further liberalization is on its way, with the division of former regional monopoly power-generation plants and transmission and distribution systems by 2020 and the unbundling of gas pipeline operations by 2022.

"Now that we have a strategy for our domestic demand, it is time to raise awareness and cooperate with other governments," said Naoko Kato, Deputy Director for International Affairs with Japan's Ministry of Economy, Trade and Industry.

"The Japanese government wants to learn from the experience of the EU government and businesses: how businesses have reacted to market liberalization, how price indices have been formed, and how European companies have reacted to destination-restriction clauses," Kato said on the sidelines of the 9th CWC LNG Asia Pacific Summit, held in Singapore September 19-22.

"Japan should accelerate all efforts in order to become an internationally recognized hub by the early 2020s, one where many LNG trades take place, and market prices are formed and publicly reported," she added.


INDIA NATURAL GAS DIVERSIFICATION


The MOC between Japan and India is aimed at promoting bilateral relationship in the energy sector, contributing to the diversification of India's gas supplies.

"This will strengthen our energy security and lead to more competitive prices for consumers," the Government of India said in a statement late Wednesday.

Earlier this week, Oil Minister Dharmendra Pradhan said India was planning to set up a gas trading exchange to ensure a uniform pricing mechanism to promote a gas-based economy.

"Our idea is to gradually switch to a market-linked transparent gas pricing mechanism by strengthening the proposed gas trading exchange," he told reporters at the India Energy Forum October 10.

Pradhan said the current mechanism in which the government fixes gas prices would continue for priority sectors during a transition period.

Both Japan and India are major energy consumers. Under the Japan-India Energy Partnership Initiative signed in January 2016, the two sides agreed to work together in promoting "a transparent and diversified LNG market through the relaxation of destination restriction clauses."

--Abache Abreu, abache.abreu@spglobal.com
--Edited by Jonathan Loades-Carter, jonathan.carter@spglobal.com




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