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ECONOMY > Energy

Japan begins full-scale import of American LNG

  • May 30, 2018
  • , Mainichi , p. 4
  • JMH Translation

Japan has fully started to import shale-gas-derived American liquefied natural gas (LNG). The move was driven by the actual launch of LNG projects in the U.S. in which major Japanese electric and gas companies participated one after another in response to the nuclear power plant suspensions and the augmentation of thermal power generation after the Great East Japan Earthquake. American LNG is distinctive in that its price is stable unlike Middle Eastern LNG, whose price moves in tandem with crude oil prices, and in that it can be resold. Japanese companies aiming to wean themselves from dependence on Middle Eastern LNG have high hopes for American LNG.

 

On the other hand, there is an expectation within the Japanese government that “the expansion of the import of American LNG will lead to a winning over the U.S. administration under President Donald Trump, which is urging Japan to redress the trade imbalance.”

 

Shale gas is a natural gas found in layers of solid bedrock. An efficient mining technology developed at the beginning of the 2000s engendered a boom in developing LNG across North America, which was hailed as a “shale revolution” that will drastically change the global energy landscape. In 2013, the administration of President Barack Obama lifted the ban on the export of shale-gas-derived LNG to Japan and other countries, prompting many Japanese companies to join LNG projects.

 

On May 21, some 70,000 tons of LNG for which production started in Cove Point, Maryland, in April, arrived at Tokyo Gas’s Negishi LNG Terminal in the Isogo Ward of Yokohama City. Tokyo Gas, Sumitomo Corp., and Kansai Electric Power Co. have signed a long-term contract of 20 years and the LNG will be primarily used as town gas.

 

There was a case in January 2017 in which JERA, a fifty-fifty joint venture between TEPCO Fuel & Power and Chubu Electric Power Co., procured American LNG based on a short-term contract. But the latest American LNG import is the first under a long-term contract. The Freeport LNG project in Texas, in which Osaka Gas and JERA have invested, is scheduled to begin production within this year and the Cameron LNG project in Louisiana, in which JERA and Mitsubishi Corp. hold a stake, will do so next year.

 

Japan has procured LNG from Australia and Southeast Asian and Middle Eastern countries. But LNG procurement from these countries generally comes with a “destination clause,” which restricts resale and poses the risk of excessive inventory. So flexibly procuring LNG was difficult and many Japanese companies were forced to buy at inflated prices. Meanwhile, a destination clause is not attached to American LNG. So buyers can reduce procurement costs by, for example, importing extra LNG in anticipation of resale to other companies and third countries.

 

Further, the price of American LNG is linked to the market price of gas in the U.S. So it is stable compared with Middle Eastern sources, which are primarily tied to crude oil prices. Yoshikazu Kobayashi, Manager of Gas Group at the Institute of Energy Economics, Japan (IEEJ), points out a benefit of American LNG, saying, “American LNG will become underpriced in case of a rise in crude oil prices due to the growing geopolitical risk in the Middle East.”

 

The expansion of American LNG exports is one of the important tools for the U.S. administration of President Trump in fulfilling his campaign promise to trim the U.S.’s trade deficit. For the Japanese government, too, energy is an area in which exports can be expanded relatively easily. A trade source says, “Buying a large volume of American LNG will be a win-win for both Japan and the U.S.”

 

Major American LNG projects involving Japanese companies

Project

Location

Production start date

Annual production capacity

Japanese purchasers

Cove Point

Maryland

April 2018

5.25 million tons

Tokyo Gas, Kansai Electric Power, etc.

Cameron

Louisiana

2019

12 million tons

JERA, Kansai Electric Power, Tohoku Electric Power, Tokyo Gas, Toho Gas, etc.

Freeport

Texas

2nd half of 2018

13.92 million tons

JERA, Osaka Gas, etc.

 

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