UPDATE 1-Tokyo Gas wins destination flexibility from new Malaysia LNG purchase

TOKYO, March 14 (Reuters) - Tokyo Gas said onWednesday it signed a heads of agreement to buy long-termliquefied natural gas (LNG) from a unit of Malaysian state oilfirm Petronas with flexible destination clauses thatare in line with the Japanese anti-trust body's ruling lastyear.

The shorter duration and smaller volumes in the new deal,along with changes to the so-called destination clauses thatrestrict where the cargoes can be sold, highlight the changesthat have occurred in the LNG market in the past few years.

Buyers have gained the upper hand as growth in new supplies,mainly from Australia and the United States, has exceeded demandand depressed prices.

The deal would be Tokyo Gas' first long-term deal since theJapan Fair Trade Commission's (JFTC) ruling last June thatdeclared the destination clauses to be anti-competitive.

The delivery terms are on delivered ex-ship (DES) andfree-on-board (FOB) basis. The JFTC said in its decision havinga destination clause that prevents buyers from reselling LNG ina FOB contract is "likely to be in violation" of the nation'sAntimonopoly Act.

In a DES contract, the provision to require "sellers'consent" to diversion is not problematic but the sellers'unreasonable refusals for a buyer's request for diversion arelikely to be in violation of the law, the ruling said.

Industry sources said Tokyo Gas could divert the volumes forresale under the new deal, but a company spokesman said he couldnot comment on details of the destination arrangements.

The company's President-Elect, Takashi Uchida, said inJanuary that the company would reduce the volumes of MalaysianLNG after the current 15-year contract in which it is buying 2.6million tonnes per year expires in March.

The company, which has been procuring LNG from Malaysia'sSatu Project since 1983, would buy Malaysian LNG for up to 13more years. Procurement volumes would be up to 500,000 tonnesper year in the first six years and up to 900,000 tonnes peryear in the remaining years, it added.

Tokyo Gas has three long-term contracts with Malaysia andthe contract that expires this month is the one with the biggestpurchase volumes. The other two contracts with volumes of340,000 tonnes and 900,000 tonnes per year, will expire in 2024and 2025, respectively, the company spokesman said.(Reporting by Osamu Tsukimori; Editing by Subhranshu Sahu)