Japan, the world's biggest buyer of liquefied natural gas ("LNG"), is currently investigating the potential anticompetitive effects of territorial restrictions in LNG supply contracts. Historically, LNG suppliers have used long-term contracts that incorporate territorial restrictions to prevent Japanese buyers from on-selling the LNG outside Japan. The effect of such clauses is to ban exports of LNG bought by Japanese customers. While this may have increased Japanese energy security, LNG suppliers have benefited from the absence of price arbitrage between Japan and neighbouring markets. This contractual framework eliminates the buyers' scope to trade LNG with other countries. The concern is that such territorial restrictions could now be resulting in a reduction in trading volumes, liquidity and increasing buy-side risk.
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