Letter from Japan: Power market risks highlight LNG rework

Flexibility and sharing of risk in gas buying and selling is becoming more essential

LNG is a super-chilled commodity but for Japanese buyers it has become a little too hot to handle. Sellers insensitive to the new fundamentals in Japan beware.The familiar pattern was for Japanese power and gas utilities to acquire at least 80–85% of their demand under contracts stretching decades. That is increasingly going out of fashion, and the reasons are not only decarbonisation, a weak yen and trouble securing financing. Arguably the biggest factor is ‘gate closure’. The term refers to a point in time when electricity generators must submit their final expected output to the grid operator, about an hour before delivering on the promise. A day before the electricity is produced, utilit