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Fuel for Thermal Power Generation

  • Types of fuel
  • Current situation of fuel procurement
  • Initiatives to ensure stable procurement and reduce costs

KEPCO participates in each stage from production to delivery of fuel and seeks to diversify its sources of supply while also diversifying pricing methods. In this way, we are maintaining or improving our costs while ensuring stability of fuel supply. This provides flexibility so that we can accurately accommodate changes in the operation plans of our power stations.

LNG

KEPCO is implementing initiatives to reduce the amounts procured in every respect, including upstream, sales contracts, procurement methods, and transport.

Various initiatives in the procurement process

KEPCO has implemented various initiatives at each stage from production to transportation and delivery.

Initiatives to provide a stable supply of affordable electricity

Initiatives to provide a stable supply of affordable electricity

Decentralization of sources

Through decentralized procurement, KEPCO can build relations with many suppliers to secure stability and flexibility of supply. By comparing different prices, the company can use checks-and-balances in price negotiations with suppliers.

Decentralization of suppliers

Diversified pricing method

Our conventional LNG pricing method was focused on the crude oil price index, but we will also adopt the natural gas price index in the future and a diversified price index. In this way, KEPCO can expect to minimize changes in the LNG procurement price caused by sudden shifts in crude oil pricing. By comparing different prices, the company can use checks-and-balances in price negotiations with suppliers.

 

What is the Cove Point LNG Project?

Cove Point LNG located in the U.S. state of Maryland

Cove Point LNG located in the U.S. state of Maryland

The Cove Point LNG Project in the U.S. aims to export LNG by refining and liquefying natural gas, including shale gas, obtained from the new liquefied natural gas plant established at Cove Point LNG Receiving Terminal owned and operated by Dominion Cove Point LNG, LP of the U.S. In April 2013, KEPCO concluded a basic agreement with Sumitomo Corporation on the purchase of liquefied natural gas produced by this Cove Point LNG Project. Through this agreement, KEPCO can purchase approximately 800,000 tons of LNG annually based on the natural gas price index of the United States for approximately 20 years from the start of LNG production. KEPCO will continue to seek LNG that is superior in pricing economy and supply stability. KEPCO continues to seek economical and stable LNG procorement, which leads to lower the cost and to support a safe and steady supply of electricity.

 
Coal

We seeks for economical procurement by diversitying procurement sources and the timing of contract negotiations.

Diversification of procurement and source brands

KEPCO procures coal mainly from Australia, but the company promotes competition by expanding its sources and coal brands. This approach provides checks-and-balances during price negotiations.

Number of source brands to be received

Staggering of the contract negotiation schedule

In principle, we negotiate and set the coal price every year, but this price can exhibit huge price swings depending on market conditions at the time of negotiations. So, KEPCO is mitigating the risk of sudden price changes due to market conditions by staggering its contract negotiation schedule.

Staggering of the contract negotiation schedule (reference)

Joint procurement

KEPCO started joint procurement for the U.S. coal (Oxbow coal) with Kyushu Electric Power in fiscal 2012. We noted that coal demand in the United States largely decreased as a result of a demand shift to gas when the gas price in the United States fell significantly as a result of the shale gas revolution. We sought to procure fuel at low cost by purchasing large quantities as a two-company consortium.

Crude Oil

KEPCO seeks to simultaneously establish an crude oil procurement chain and reduce costs to cope with large shifts in supply and demand.

Decentralization of suppliers

Conventionally, KEPCO procures crude oil mainly from Southeast Asian sources, but fuel procurement stability can best be achieved by negotiating with a diversity of suppliers in Russia and Africa, even if we need to increase the quantity of our purchases suddenly. Moreover, by purchasing crude oil from multiple suppliers, we can expect benefits from checks-and-balances during price negotiations.

Diversification of the index

The price of crude oil varies as prices move independently in each crude oil price index. Crude oil pricing is determined by price indexes relevant to each producing region. Therefore we can choose a lower-priced index and ensure a stable supply of crude oil by diversifying the reference crude oil index each time.

Crude oil supplier ratio

Accommodating increases in transport volume

In light of the decrease in the number of coastal tankers available for domestic crude oil transfer, KEPCO converts ocean-going vessels into coastal tankers in order to accommodate sudden increases in transport volumes. By securing new ships and negotiating spot shipping contracts, we are securing stability of transport capacity for the medium term.