By Osamu Tsukimori
TOKYO, Nov 16 (Reuters) - Japan's Fair Trade Commission (JFTC) has ordered the country's liquefied natural gas (LNG) buyers to provide details on contract requirements that prevent them from reselling the fuel to third parties, according to a source with direct knowledge of the inquiry.
The move suggests the powerful anti-monopoly regulator has launched a formal investigation into whether the so-called destination clauses limit competition and could lead to hundreds of billions of dollars LNG contracts being renegotiated.
Japan, the world's biggest LNG buyer, and other Asian buyers have complained that the long-established practice of adding the clauses to LNG contracts places unfair restrictions on trading the fuel when it would make more economic sense to sell to other markets.
The JFTC inquiries were made under the country's anti-monopoly law and companies failing to comply with the order could be subject to penalties, said the source at one of country's main LNG buyers.
"It looks like the FTC began making a move on destination clause late last month," said the source, who added his company received the order in October.
The deadline for responses is the end of this month, the source said.
A spokesman at the JFTC declined to comment, when contacted by Reuters.
Producers have rebuffed objections to the clauses, but that is changing as U.S. LNG supplies, which are linked to gas prices instead of the traditional connection to oil prices, have become available.
In the last decade, the European Commission forced through the renegotiation of billions of dollars of LNG contracts after finding destination clauses hurt competition.
Japan's trade ministry issued a report in May recommending Japan should abolish or relax destination clauses in the future so that the utilities can take advantage of reselling and arbitrage trading opportunities in pursuit of more reasonable prices.
Japan, Europe, South Korea, China and India, which together account for about 80 percent of the world's total LNG imports, have jointly called for relaxing or abolishing the destination clause, the trade ministry said. (Writing by Aaron Sheldrick; Editing by Christian Schmollinger)