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 makes efforts to ensure the stable procurement of LNG and other raw materials by further diversifying procurement sources. We also strive to procure raw materials with market competitiveness by diversifying contract price indicators. When importing LNG and other raw materials from other countries, we work to make the transportation process expeditious, safe and steady by operating LNG tankers, including those owned by us, in an efficient manner.
To ensure the stable procurement of LNG and make our natural gas business profitable, we work on participation in liquefaction projects and gas field development projects.

Believing that it is necessary to take responsible measures in cooperation with our business partners regarding the social and environmental impacts that occur in these series of value chain business processes, we have established the Daigas Group Procurement Policy and informed our business partners of it along with the Daigas Group Procurement Policy for Suppliers.

For LNG sellers with whom we have signed long-term purchase contracts for LNG, we conduct a questionnaire survey to check the status of their policies, initiatives, and information disclosure regarding items of corporate governance, human rights, labor, the environment, and consideration for local communities, referring to the European Commission's Guide for the Oil and Gas Industries concerning the Implementation of the UN Guiding Principles on Business and Human Rights, which was issued in 2013.

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 larger 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 project, launched in Texas, the U.S., in December 2019, has increased the number of countries of its suppliers by one, resulting in eight countries—Brunei, 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. This 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 us to procure LNG at stable prices even if crude oil prices fluctuate. Moreover, investment in the natural gas liquefaction project will enable us to procure a kind of price-competitive LNG, whose 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 2021

■ LNG Handled by Osaka Gas (including the amount of LNG for electricity generation and wholesale trade)

LNG Handled by Osaka Gas (including the amount of LNG for electricity generation and wholesale trade)

■ 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, 2021)

Project name Location Project type Concession ratio Year of participation in the project
Sunrise Australia, East Timor 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
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

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’s acquisition of all issued shares of Sabine Oil & Gas Corporation (hereinafter, “Sabine”) through Osaka Gas’s U.S.-based subsidiary.

This is the first agreement by a Japanese company to acquire a U.S.-based shale gas developer. Through this agreement, we will position the shale gas development project as a third pillar of our energy business in the U.S., following the Freeport LNG project and a power generation project, to further increase profits.

Sabine owns a mining field of about 1,000 km² (about 250,000 acres), which is 1.5 times larger than Lake Biwa, in the eastern part of Texas. In 2020, it produced gas of about 2.2 million tons when converted into LNG from about 1,100 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 Sabine. The gas field has brought us a larger production amount and greater profits than we expected when joining the project. This acquisition has enabled 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 in 2018, cooperation with Sabine has allowed us to confirm Sabine’s great operator skills underpinned by the company’s competent management. This acquisition has enabled us to acquire operatorship that helps 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

LNG JUNO

LNG JUNO

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.

■ Fleet of Osaka Gas LNG Tankers (As of March 31, 2021)

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

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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