Power price drop puts Tokyo/Shell power project in doubt

10 October 2002 – A major power project being planned jointly by Tokyo Gas Co. and a unit of Royal Dutch/Shell is in jeopardy following a cut in commercial power rates by Japan’s largest power utility.

The partners announced a plan last December to build a new natural gas fired power plant with an output of 1500-2000 MW near Tokyo by March 2006, at an estimated cost of 12 to 16bn yen ($97-130m).

“We are considering scrapping the joint power project, although a final decision has not been made,” said a spokesman for Tokyo Gas.

He said a steep rate cut by Tokyo Electric Power Co, Japan’s largest power utility, announced in April has made the project less likely to be economically feasible.

TEPCO unveiled a 14-15 per cent rate cut for commercial power users such as office buildings in April, gearing up for tougher competition brought by industry deregulation. The other major power utilities have also reduced power rates.

The Tokyo Gas spokesman said it hopes to make a final decision on the project by the end of this month. The power project Shell’s first in the Japanese market.

Royal Dutch/Shell Group and Tokyo Gas Co established in May a joint venture to supply natural gas to power providers in Japan amid the nation’s ongoing industry deregulation.

The venture marked the first time a Japanese gas utility company has gone beyond the conventional seller-buyer relationship with a major oil company. It also marks Shell’s entry into Japan’s downstream gas market as the energy giant moves to expand its gas marketing activities.

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