Short-Term Contracts Help Japan Deal With Demand Uncertainty

12 Oct 2016: Japanese LNG importers are beginning to rely on short-term contracts as it gets more difficult to forecast their long-term demand, a result of uncertainty about the timing of nuclear plant restarts as well as liberalization of the country’s power and gas markets. Importers are willing to pay higher prices if they can get greater supply flexibility, in particular downward quantity tolerance (DQT) and cargo diversions, to shift the risks of demand uncertainty to suppliers. JERA, the Tokyo Electric Power and Chubu Electric joint venture, is expected to move towards more short-term contracts to replace long-term contracts that are expiring in the next two years, company officials said. Recent price reviews for existing contracts also focused on increasing DQT percentages, and to get that JERA is willing to buy at a slope around 14% of oil despite weaker prices across new long-term contracts, industry sources said. Please fill out the form below to access article.