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LNG sellers open to lifting destination clauses

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LNG Industry,

Reuters are reporting that some sellers of LNG have told Japan's JERA Co that they could be open to removing destination restrictions from existing long-term contracts.

JERA contacted the sellers after Japan's Fair Trade Commission (FTC) ruled two weeks ago that new long-term LNG contracts signed with Japanese buyers could not have destination restrictions, or clauses that mandate where a cargo can be delivered and limit buyers from reselling excess gas.

Removing the destination clauses would radically alter the Asian LNG marketplace. Sellers have insisted on the measures for years. However, amid a glut of new supply from Australia and the US and slackening end-user demand that has left them unable to absorb their current supply, buyers are demanding more flexibility in their contracts.

JERA recently began to contact its existing long-term contract sellers to explain the FTC's finding.

JERA imports 40 million tpy of LNG, including about 35 million t under long-term contracts.

Other Japanese buyers are also looking to change their contracts.

JERA would not try to lift or mitigate the destination restrictions in all existing contracts, because trying to revise a contract that expires in the near future would be meaningless.

There is a chance that sellers may ask buyers to make concessions in return for removing destination constraints.

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