Japan LNG Investing

Brian Hicks

Written By Brian Hicks

Posted September 18, 2013

As of Monday, nuclear energy in Japan is shut down 100 percent. And while the nation is not completely sold on flipping the switch for good, this opens the door for liquefied natural gas (LNG).

Japan Stock Market BlossomsJapan’s growing fears following the Fukushima disaster of 2011 – which is still creating problems today – and a growing dependence on gas made the decision all the more easy.

Now, more than 50 nuclear plants have been shut down, and LNG imports are at levels not seen since before the 2011 tsunami. And with the U.S. ready to export its abundant supply of natural gas, it’s time to give Japan what it wants – cheap gas, and a lot of it.

The big problem Japan is facing now with this shutdown is that gas prices are expected to be pushed up on the international market. It doesn’t help that Germany has already committed to end nuclear power production by 2022.

Time is of the essence.

Presently, Japan consumes right around a third of the world’s LNG, and its demand is only going to increase, especially after this week and into the next few years.

Imports already rose 4.4 percent to a record 86 million tons in the year to March, the Guardian reports, and the value grew 14.9 percent.

Japan only stands to hurt itself by not securing good, cheap gas now.

Moving On

Up until Japan’s natural disaster and the Fukushima meltdown, nuclear power was responsible for 30 percent of the electricity of Japan, the world’s third largest economy. And it was supposed to stage a comeback as the nation recovered, but that never happened.

Until that point, Japan’s economy was flourishing. Trade was up, and its balance of payments was secure. But all that has changed now, especially as reliance on LNG has gone up right along with the price to purchase it.

Natural gas-fired power plants are supposed to keep the economy going. In order for Japan to turn things around, cheap natural gas has to be a big part of the solution.

Even with a good supply, Japan still runs the risk of disruptions as its gas travels across ocean trade routes.

This is where the U.S. can step in, strengthen Japan’s supply chain, and help eliminate the threat of Japan ever facing any sort of blackout or shortage of LNG – a predicament that would threaten the entirety of the global economy.

If the biggest economy behind only the U.S. and China were to stumble, we would all see the ramifications.

Setting Up

So now we’re left wondering who is going to turn to the U.S. for help.

Osaka Gas (TYO: 9532), Chubu Electric Power Co. (TYO: 9502), Sumitomo Corp. (OTC: SSUMY), Mitsui & Co. (OTC: MITSY), Mitsubishi Corp (OTC: MSBHY), and Nippon Yusen K.K. (OTC: NPNYY) have all announced deals to buy LNG from U.S. suppliers.

Tie these to the now four LNG suppliers who have been granted permission by the Department of Energy (DOE) to export to non-FTA (free trade agreement) sanctioned nations, and we’re in business.

And that’s just the tip of the iceberg. At least three more export requests are likely to be granted by year end if regulators continue on their current pace.

This will alleviate some of the security threats that shipments face from the Middle East, where much of the LNG sails through the Strait of Hormuz, under constant threat of disruption as war and agitation persists.

Alaska could prove a big mover, too. An agreement signed just last week with the Japan Bank for International Cooperation (JBIC) will investigate the state’s natural gas resources. The JBIC is involved in nearly all major LNG projects to Japan. It’s also looking into Australia as a possible source.

Moving In

So as Japan continues to build LNG relationships, its primary focus has to be on finding the cheapest gas possible. It’s already the world’s biggest buyer of the stuff, and it’s still in the process of figuring out ways to make it even more economical.

The best way to do that is to look to North America, and U.S. suppliers in particular.

It’s about to get pretty competitive, and suppliers are going to be throwing their best prices and terms in Japan’s direction.

At the moment, it is still unclear what Japan will do with its nuclear power. For now, it’s shut down, but it’s not hard to turn it back on. In all likelihood, we’ll eventually see some plants return to action in the coming years. But for now, all talks are LNG – LNG that will increase globally by 30 percent by the year 2018.

Let’s get ready.


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