WoodMac: Tokyo Gas and Centrica LNG procurement HOA indicates optimism returning to global LNG markets

Commenting on the announcement that Centrica and Tokyo Gas have signed a heads of agreement for LNG procurement, Giles Farrer, Wood Mackenzie Research Director, said:

 "The heads of agreement for LNG procurement, announced by Tokyo Gas and Centrica today, is an important milestone for the Mozambique Area 1 LNG project and another sign that optimism is returning to Global LNG markets.

"The two buyers will jointly buy 2.6 mmtpa from the project on a DES basis, which is a significant volume. In 2025, the full 2.6 mmtpa would represent 25% of Tokyo Gas's LNG contracted for procurement and more than double Centrica's LNG contracted for procurement. The deal signals Mozambique's appeal to buyers in both basins and illustrates that European buyers are in the market for long-term LNG contracts as European import dependency rises.

"The deal gives momentum to the project in Mozambique, which has previously announced SPAs for 2.6 mmtpa with PTT, 1.2 mmtpa with EDFT and a basic agreement with Tohuku electric for 0.28 mmtpa. The additional 2.6 mmtpa will strengthen the project further and bring it closer to achieving the amount of contracts required to support financing - likely around 9 mmtpa. It could also encourage other buyers to finalize offtake from the project. Market intelligence indicates that other deals are close with Asian buyers, which could encourage those countries' national export credit agencies to provide funds for the project.

"The deal itself looks complicated and is another sign of the rising complexity in LNG contracting. It follows the earlier LNG co-operation agreement announced by Tokyo Gas and Centrica in 2016.

"LNG will be delivered on a DES basis and we assume part of the volume is likely to be fixed for delivery into the UK and Japan, with put and call options for other parts of the volume depending on supply, demand and price dynamics in the Pacific and Atlantic basin. As such, we would expect parts of the volume to be priced on an NBP basis and partly oil-linked.

"Given there are more proximate LNG markets to Mozambique, we would also expect there to be diversion options to alternative markets with pre-arranged profit sharing mechanisms between the two companies and the project."

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