Japanese gas supplier Tokyo Gas Co. said on Nov. 21 that it signed a memorandum of understanding with British utility Centrica for a location swap of LNG to cut transportation costs.

A location swap of LNG is still rare globally, but the phenomenon is expected to grow in number in Japan because cutting procurement costs is essential for city gas suppliers ahead of the full city gas retail market liberalization, which begins in April 2017.

Japan is the world's top LNG importer and consumer.

Tokyo Gas will supply Centrica with 700,000 tonnes per year (tonnes/year) 800,000 tonnes/year of U.S. shale LNG from the Cove Point project in Maryland, starting possibly from late 2018 when Cove Point production stabilizes, said Kentaro Kimoto, CEO of Tokyo Gas.

In return, Tokyo Gas will receive the same volume of LNG procured in Asia-Pacific markets from U.K.-based Centrica. The two companies have not decided how long the location swap would last, Tokyo Gas said.

Tokyo Gas, which has a contract to buy 1.4 million tonnes/year of LNG for 20 years from Cove Point, was considering using four ships to transport LNG from the U.S. shale gas project. Tokyo Gas is now considering allocating one or two of the four ships to dedicate supplies to Centrica, Kimoto said.

The deal will help Tokyo Gas avoid passing through the costly Panama Canal, and the two firms will benefit from reduced transportation costs, Kimoto told reporters.

The two companies will next aim to reach a legally binding agreement, possibly next year, Kimoto said.