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Natural Gas Export Deals

Japan Interested in U.S. LNG

Written by Brianna Panzica
Posted August 1, 2012

The shale boom has opened up a world of profit for the United States.

In extracting abundant oil and gas resources from the subterranean rock, the nation now has more domestically produced energy than it has in a long time.

Its dependence on foreign sources is shrinking. Natural gas prices hit a ten-year low last year. And now there's the potential for exports.

Cheniere Energy Inc. (NYSEAMEX: LNG) has already been granted a permit for its Sabine Pass, Louisiana export terminal.

Nations like Korea and India have made purchases of U.S. liquefied natural gas (LNG).

And Japan wants a piece of the action. Freeport LNG Development LP announced that it has agreed to produce LNG for Japan's Osaka Gas Co. (TYO: 9532) and Chubu Electric Power Co. (TYO: 9502).

In the U.S., LNG prices are about $3.25 per million British thermal units. Japan paid nearly six times that in June—$18.64 per Btu.

And the nation has been much more reliant on oil and gases since the Fukushima nuclear disaster caused the country to shut down much of its nuclear activity.

Kei Takeuchi, Osaka Gas's associate director for LNG trading, believes the deal will ease the pricing pressure in Japan:

“We believe this contract can challenge the pricing practice and diversify the benchmark prices for LNG supplies from other sources.”

Freeport, meanwhile, is awaiting the approval of the Department of Energy. Cheniere was able to score a permit to export the resource, but Freeport may not be so lucky.

The Department of Energy has since begun reviewing the impact natural gas exports will have on the economy and the domestic supply. Prices have already begun to rise as the hot weather in the U.S. reduced the supply.

The U.S. has an ultimate goal of energy independence—one that domestic energy production like this will facilitate. The Department of Energy will have to make sure that prices, domestic use, and production won't be too affected.

Tri-Zen International Ltd. consultant Tony Regan told Bloomberg:

“Freeport may or may not get the export license, and the moratorium on LNG exports is not going to be reviewed before the U.S. presidential elections. It may be difficult.”

Other Japanese companies are also trying to get in early. Mitsubishi Corp. (TYO:8058) and Mitsui & Co. (TYO: 8031) will both aid Sempra Energy (NYSE: SRE) in the construction of its $6 billion Louisiana export facility in exchange for 1.7 billion cubic feet a day.

And Sumitomo Corp. (TYO: 8053) and Tokyo Gas Co. (TYO: 9531) have signed a 20-year agreement with Dominion Resources Inc. (NYSE: D) to purchase 2.3 million metric tons from the Cove Point terminal.

Freeport is also talking to Royal Dutch Shell PLC (NYSE: RDS.A) about exports, though details of those talks have yet to be released.

As the company awaits the decision of the Department of Energy, chief executive Michael Smith sees only positives:

“Jobs, jobs, jobs and an improved trade deficit. We have 100 years supply of gas with today's technology. We probably have 200 years supply with future technology. Why shouldn't we export some of this and reduce our trade deficit?”

That's all for now,

Brianna

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