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Japan’s Competition Regulator Questions LNG Destination Clauses

Date: 14 September 2017
Liquefied Natural Gas Alert
By: Eric W. Sedlak, Steven C. Sparling, Tsuguhito Omagari

The Japan Fair Trade Commission (“JFTC”), Japan’s competition regulator, recently published results of an investigation into destination restrictions in liquefied natural gas (“LNG”) supply contracts. The results of the investigation were published in a report on June 28, 2017, entitled “Survey on LNG Trades (Chapter 4E Ensuring of Fair Competition in LNG Trades)” (the “Report”). [1]

JFTC appears to have undertaken the preparation of the Report in response to changing market conditions, where an increase in LNG supply (and suppliers) and the associated drop in prices could make inflexible long-term contracts unattractive to buyers, including in Japan, which consumed approximately 34% of the world’s LNG in 2015. [2] The market view, however, is that Japanese buyers probably have contracted for LNG in excess of their needs in the short and medium term, making the enforceability of destination clauses of paramount relevance.

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[1] http://www.jftc.go.jp/en/pressreleases/yearly-2017/June/170628.files/170628-2.pdf.
[2] IGU World LNG Report 2016.

This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer. Any views expressed herein are those of the author(s) and not necessarily those of the law firm's clients.

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