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The Editorial "TEPCO's Raise Efforts to Minimize the Fuel Cost?" of the Morning Paper of Asahi Shimbun

Mar 13, 2012
Tokyo Electric Power Company

The contents of the above-captioned editorial contain descriptions which are not based on the facts or may cause misunderstandings. The facts are as follows.

○ At the beginning, it states that "TEPCO will apply for approximately 10 % raise of the households' electricity bill", however, we have not decided the concrete ratio of the raise.

○ Currently, the world's natural gas market is roughly divided into the United States, Europe, and Asia. The market environments and demand-supply balances are different due to their individual circumstances such as the pipeline networks and the shale gas production. In the short term, in Asia, according to the rapid growth in the LNG demand, LNG which was reserved originally for United States and Europe is supplied to Asia in spot transactions. In such case, the base price is basically the same as that for the United States and Europe, but the final price is higher in Asia, which is further from the source, reflecting the distance of transportation. At the moment the transportation cost is jumping due to the shortage of LNG vessels, which influences the price gap. Therefore, LNG is neither purchased at especially high price by Japan in the Asian market nor the problem is concerning only the electric power companies.

○ In addition, in purchasing LNG, of course, we have endeavored to minimize the procurement cost by the various measures such as cooperation with the other electric power companies and the gas companies. In order to steadily secure LNG supply, we assume that it is effective to basically depend on long-term contracts, which is the current way of our procurement.

○ It states that "Japanese party led by the electric power companies has been and is "buying LNG at the high price" since before the earthquake". The LNG price is the lowest at Henry hub, the second lowest in Europe, and high in Asia. However, when we view the price in the past ten years, the price has not always been high in Asia. The statement that the Japanese party "continuously" kept buying LNG at the high price is not based on the fact.
(See the graph attached).
* Henry hub: The primary gas collecting point in the United States. The price at this point is traded at the New York Mercantile Exchange and serves as the index of the natural gas price in the United States.

○ "In the foregoing (regarding the development of shale gas) United States, LNG price dropped dramatically and it is traded in the price which is one-sixths of the import price of Japan". However, the significant drop of the LNG price is due to the rapid rise of production of non-conventional gases (in around 2008) and they were supplied to the market via the well-developed pipelines. Therefore, we cannot compare the situation in the United States with that of Japan, which has no natural gas resource, no pipelines, and no materials for pickoff against the sellers, and has no other choice but to depend on import. In addition, we have to note that there arise additional costs to liquidate and transport natural gas before importing it to Japan.

○ The sellers show firm attitude under the current situation, in which almost all of the nuclear power stations stopped their operation and the LNG market is tightening. We are striving to lower the price in the severe circumstance by negotiating with the sellers about pricing method which links to the index price of natural gas in the United States and Europe. For reference, the Henry hub price has not always been the lowest and we have to note that, if the Henry hub price jumps, the Henry hub-linked LNG price will correspondingly rise.

Appendix: Transition of the Natural Gas Price

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