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Contract restrictions on reselling LNG cargoes ended

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LNG Industry,

Reuters are reporting that Japan's anti-monopoly regulator has announced that all new contracts for LNG must not contain restrictions on the resale of cargoes of the fuel, ending a practice Japan’s buyers say is unfair.

The ruling is likely to result in more trading of LNG cargoes by buyers in Japan, and could lead to a challenge to similar restrictions elsewhere in Asia.

Asian LNG buyers have long complained that the long-established practice of placing destination clauses in LNG contracts unfairly restricts trading of the fuel when it would make more economic sense to on-sell supplies into other markets.

The ruling comes as many producers have already relented on the issue, offering contracts without resale or destination restrictions.

Producers in Qatar have several long-term LNG contracts up for negotiation with Japan between now and 2021, while producers in Malaysia will also be affected.

The move is a reprise of the upheaval in Europe in the early 2000s when the EU found certain gas market practices anti-competitive.

Japan's Fair Trade Commission late last year ordered the country's LNG buyers to provide details on contract requirements that prevent them from reselling the liquefied fuel to third parties.

Japan's trade ministry issued a report in May 2016 recommending that destination clauses be abolished or relaxed in the future so that utilities can resell cargoes or take advantage of arbitrage trade opportunities.

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