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Japan Eyes North American LNG Imports

Brian Hicks

Written By Brian Hicks

Posted September 19, 2012

Tokyo Electric Power Co. (TYO: 9501), Japan’s biggest utility company, is currently involved in talks to confirm a deal that will allow it to purchase supplies of liquefied natural gas (LNG) from North America in an effort to cut down high import prices.

Since the Fukushima affair, Japan has striven to move away from nuclear power, toward renewables and LNG in particular. Thanks to the shale-generated boom, North American gas prices hover at around $3 per million British thermal units (mmBtu), and Asian markets have been eyeing it hungrily. Spot LNG costs much higher over there, at almost $13 per mmBtu.

Tepco, which operated Fukushima, considers it a matter of great urgency that it secures cheaper and reliable fuel supplies to reform its business, even as it must contend with several billion dollars in compensation fees. Japan nationalized the company earlier this year.

From the Financial Post:

“We have been in negotiations with several projects,” Toshiaki Koizumi, the general manager of Tokyo Electric’s fuel department, said at a briefing in Tokyo.

“We want to procure LNG from the United States and Canada where prices are linked to Henry Hub. The talks have made progress, but I cannot say when they will be finalised,” Koizumi said, referring to the main U.S. gas distribution centre.

Washington, of course, will have to sign off on any such deal. It is currently reviewing export license applications. Tokyo has been in talks with the American government since last year in efforts to allow shale gas LNG exports to Japan. They’re trying to begin receiving imports via the Panama Canal by 2015. So far, Chubu Electric Power Co. (TYO: 9502), Tokyo Gas (TYO: 9531), Osaka Gas Co. (TYO: 9532), and Sumitomo Corp. (TYO: 8053) have declared that they have confirmed deals for U.S. shale gas.

Due to low funds, Tokyo Electric won’t actually purchase stakes in upstream shale gas projects, but it is very interested in buying LNG offtake. At present, all of Japan’s LNG import prices are tied to oil prices. Shifting U.S. benchmark gas prices at Henry Hub could go a long way toward reducing those costs.

Since Fukushima, Japan’s LNG imports have expanded dramatically; the fiscal year ended this March saw an increase of 17.9 percent to reach an all-time high of 83.2 million tons. Should the U.S. government approve Tokyo Corp.’s application, shipments to Japan could be priced as low as $10 or below per mmBtu.

So far, all five major Japanese trading houses have invested heavily in shale gas and oil projects in North America to a total of more than $13 billion. Tokyo Electric hopes to purchase 24.5 to 25.0 million tons of LNG by next March and about 23 million tons the following year.

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