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Japan's LNG buyers wrestle more flexible deals from suppliers

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Reuters is reporting that Japan's LNG buyers are using their leverage as the world's biggest buyers of the fuel to wrestle concessions for more flexible terms.

Japan's electric utilities have won provisions that will allow them to divert contracted LNG cargoes if they restart their nuclear reactors, most of which have been shut since the 2011 Fukushima disaster. This could set a precedent as more contracts start coming up for renewal.

A shrinking population and greater use of alternative fuels has lowered Japan's LNG demand. Because of that, utilities have pushed to gain allowances to resell imported cargoes and reduce their dependence on long-term contracts.

A persistent supply glut and low spot prices have given Japan's utilities the upper hand in their negotiations with sellers. About 32 million tpy of LNG capacity will come online in 2017, equal to about 12% of 2016's global imports.

Japan has traditionally used so-called take-or-pay contracts for LNG purchases that oblige them to pay for a fixed volume of imports, and they are restricted from reselling cargoes if demand drops.

Now, LNG buyers are being offered the restart provisions to entice them to sign up for new contracts.

Even as Asian spot LNG prices have dropped 65% from their 2014 peak, Japan's electric utilities still want to restart their nuclear reactors since they are a lower-cost power generation source.

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