Safety and Security 1: Procurement Stage

Aspects Determined as Materiality
  • Customer Health and Safety

    416-1

Principle and Outline

In recent years, expectations and demand for natural gas have grown from the viewpoint of ensuring energy security. Osaka Gas has been making efforts to ensure the stable procurement of LNG by further diversifying procurement sources. The Company has been also striving to procure LNG with market competiveness by diversifying contract price indicators. When importing LNG from other countries, we are making the transportation process expeditious, safe and steady by operating LNG tankers, including those owned by Osaka Gas, in an efficient manner.

To ensure the stable procurement of natural gas and make our natural gas business profitable, we have been participating in liquefaction projects and gas field development projects.

Stable Procurement

Ensure stable procurement by diversifying sources of LNG imported by Osaka Gas

Unlike oil resources, which are unevenly concentrated in the Middle East, natural gas resources—the source of city gas and fuels for power generation—are spread worldwide. Natural gas’s reserve-to-production ratio is also much longer than that for oil*, giving the former a comparative advantage as an energy source. Osaka Gas started importing LNG from Brunei in 1972 and has since diversified its procurement sources.The natural gas liquefaction business launched in Texas, the U.S., in December 2019 has increased the number of countries of its suppliers by one, resulting in nine countries—Brunei, Indonesia, Malaysia, Australia, Qatar, Oman, Russia, Papua New Guinea, and the U.S.—providing LNG for Osaka Gas. LNG from the U.S. is procured with a new method, whereby the price is determined in connection with Henry Hub prices, the index upon which the market price for natural gas futures is based in the U.S. The procurement method has been added to Osaka Gas’s existing procurement method, whereby the price is determined by indexing to crude oil prices.

The use of more diverse price indicators will enable Osaka Gas to procure LNG at stable prices even if crude oil prices fluctuate. Moreover, investment in the natural gas liquefaction project will enable the Company to procure a kind of price-competitive LNG, of which price is closer to prime cost, among the kinds of LNG whose prices are linked to Henry Hub prices.

We will continue our efforts to procure more affordable LNG in a more stable manner.

  • *Source
    BP Statistical Review of World Energy June 2020
■LNG Imported by Osaka Gas (The amount of LNG for electricity generation and whole sale trade is included.)
LNG Imported by Osaka Gas (The amount of LNG for electricity generation and whole sale trade is included.)
■Countries with Natural Gas Reserves and LNG Supply Sources for Osaka Gas
Countries with Natural Gas Reserves and LNG Supply Sources for Osaka Gas

Expanding upstream business including obtaining LNG rightss

Osaka Gas is one of the first Japanese companies to work on the upstream business. In 1990, we took part in a gas field development project in Indonesia, which was later followed by gas and oil development projects in other countries.

As for our future upstream business, we will steadily implement existing projects while taking advantage of our domestic position as a gas and electricity buyer as well as an investor in development projects. In the future, we also aim to obtain concessions in new development projects, focusing on relatively less risky projects that are already in operation or being developed.

■Upstream Businesses of the Daigas Group (As of March 31, 2020)
Project name Location Project type Concession ratio Year of participation
in the project
Sunrise Australia, East Timor LNG 10% 2000
Evans Shoal Australia LNG 10% 2000
Idemitsu Snorre, Norway Norway Oil, natural gas 1 - 10% 2005
Qalhat LNG Oman LNG 3% 2006
Crux Australia LNG, oil 3% 2007
Gorgon Australia LNG, oil 1.25% 2009
Ichthys Australia LNG, oil 1.2% 2012
Pearsall shale gas / oil U.S.A. Natural gas, oil 35% 2012
Condensate and gas development
in West Papua New Guinea
Papua New Guinea Natural gas, oil 10 - 20% 2014
East Texas Shale Gas Project
Sabine Oil & Gas Corporation
U.S.A. Natural gas,
condensate,
natural gas liquids *
100% 2018
  • * Natural gas liquids are liquid hydrocarbons separated and recovered from natural gas that becomes liquid at standard temperature and pressure.

TOPIC: Osaka Gas acquires all shares of Sabine Oil & Gas Corporation, a U.S.-based shale gas development company

On July 28, 2019 (CT), Osaka Gas Co., Ltd. and Sabine Oil & Gas Holdings*, a shale gas developer operating in Texas, the U.S., concluded an agreement for Osaka Gas to acquire all issued shares of Sabine Oil & Gas Corporation (hereinafter, “Sabine”) through Osaka Gas’s U.S.-based subsidiary.

This is the first agreement to enable a Japanese company to acquire a U.S.-based shale gas developer. Through this agreement, Osaka Gas will position the shale gas development project as a third pillar of its energy business in the U.S., following the Freeport LNG project and a power generation project.

Sabine owns a mining field of about 1,000 km² (about 250,000 acres) in the eastern part of Texas and currently produces gas of about 2 million tons per year when converted into LNG from about 1,200 wells. That is an excellent mining field with the potential for further development for the future.

In July 2018, we acquired a 35% right to a gas field in the eastern area, which is about half of the mining field owned by Sabin. The gas field has brought us a larger production amount and greater profits than we expected when joining the project. This acquisition will enable us to own Sabine’s entire mining field, including the western area, where many wells in operation are located and producing stable profits.

In addition, since we participated in the project last year, cooperation with Sabine has allowed us to confirm Sabine’s great operator skills underpinned by the company’s competent management. We believe that this acquisition will enable us to acquire operatorship that will help us take the initiative in promoting the project in the upstream energy business in the U.S. and consequently to conduct businesses more strategically. In the future, we aim to develop the business efficiently and sustainably with Sabine as a promotor of our upstream energy business in the U.S. by merging the shale gas development division of our U.S.-based subsidiary with Sabine.

  • * Sabine Oil & Gas Holdings owns all shares of Sabine Oil & Gas Corporation.

Expanding fleet of LNG tankers

  • Osaka Gas has been striving to secure its LNG transportation capacity using a fleet of eight LNG tankers. Demand for LNG transportation is expected to grow following the scheduled starts of new projects such as the Freeport project in the United States.

    Under these circumstances, we will effectively utilize our existing fleet and expand it if necessary to ensure stable and economical source gas procurement and to diffuse the use of natural gas.
  • LNG JUNO

    LNG JUNO

■Fleet of Osaka Gas LNG Tankers ( As of March 31, 2020 )
Tanker 1 2 3 4 5 6 7 8
LNG
JAMAL
LNG
DREAM
LNG
BARKA
LNG
JUPITER
LNG
VENUS
LNG
MARS
LNG
JUNO
LNG
SATURN
Loading
capacity
135,000m³ 145,000m³ 153,000m³ 153,000m³ 153,000m³ 153,000m³ 180,000m³ 153,000m³
Tank
type
5 Moss-type tanks 4 Moss-type tanks 4 Moss-type tanks 4 Moss-type tanks 4 Moss-type tanks 4 Moss-type tanks 4 Moss-type tanks 4 Moss-type tanks
Tanker management
company
NYK Line NYK Line NYK Line NYK Line Mitsui O.S.K. Lines, Ltd. Mitsui O.S.K. Lines, Ltd. Mitsui O.S.K. Lines, Ltd. Mitsui O.S.K. Lines, Ltd.
Shipyard Mitsubishi Heavy Industries, Ltd. Kawasaki Heavy Industries, Ltd. Kawasaki Heavy Industries, Ltd. Kawasaki Heavy Industries, Ltd. Mitsubishi Heavy Industries, Ltd. Mitsubishi Heavy Industries, Ltd. Mitsui O.S.K. Lines, Ltd. Mitsubishi Heavy Industries, Ltd.
Year the
Service started
2000 2006 2008 2009 2014 2016 2018 2020
(launched in 2016)

TOPIC: Freeport LNG project put into commercial operation

  • Freeport LNG plant Photo: Courtesy of Freeport LNG Development, L.P.

    Freeport LNG plant
    Photo: Courtesy of Freeport LNG Development, L.P.

  • On December 8, 2019 (CT), the Freeport LNG project in Texas, the U.S., in which Osaka Gas and JERA Co., Inc. have participated through FLNG Liquefaction LLC (hereinafter, “the first-train liquefaction company”), was put into commercial operation on the first train of the LNG production equipment.

    About five years after the first-train liquefaction company made the final decision to make investment in October 2014, the project finally started its commercial operation.

    This project is an LNG project promoted by Freeport LNG as an operator. It liquefies natural gas procured from the U.S. gas market to export the resulting LNG. Osaka Gas and JERA will annually receive about 2.32 million tons of LNG each based on the liquefaction and processing agreement with the first-train liquefaction company.

    Since participating in the project in 2014, both companies have contributed to the launch of the project. We will utilize the knowledge we obtain from our project management work in order to expand our LNG business in the future. In addition, through LNG procurement from this project, we will secure LNG with no destination restrictions and diversify supply sources and price indicators to ensure stable and flexible LNG procurement.
■Overview of the Freeport LNG project
Location Freeport, Texas, U.S.
Capacity of liquefaction equipment Approximately 5 million tons / year x 3 trains
Contract volume Osaka Gas: Approximately 2.32 million tons / year (20-year liquefaction processing agreement)
JERA: Approximately 2.32 million tons / year (20-year liquefaction processing agreement)
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