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Japan LNG Demand on the Rise, Looks to Secure US Export Contracts

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June 24, 2012

Image: TEPCO

ST. PETERSBURG, Russia (Dow Jones) –Japan is hopeful that some accord can be reached with the United States to secure liquefied natural gas exports from some of the country’s recently unlocked bounty of shale gas, despite the world’s third-biggest economy not having a free-trade agreement with the U.S.

“We are conducting negotiations at the moment so that it can be exported unconditionally, even if we don’t have an FTA,” said Economy, Trade and Industry Minister Yukio Edano.

“I would refrain from going into specifics about our bilateral negotiations. However, I am sure that eventually that we will come to a conclusion that is expected,” said Mr. Edano in an interview here with Dow Jones Newswires.

Japan’s LNG demand has been on the rise, as power utilities have boosted operating rates at thermal power stations to make up for nuclear power capacity that has been idled to assuage public fears caused by the Fukushima Daiichi nuclear crisis.

U.S. authorities in April granted approval for the first LNG exports in more than 40 years, from a site on the coast of Louisiana, in a decision that is expected to pave the way for a major shift in global gas markets. A surge in U.S. shale gas output, thanks to new hydraulic fracturing techniques, has turned the country into the world’s biggest gas producer, sending domestic Henry Hub prices to decade lows.

By contrast, LNG prices in countries like Japan are at least seven times higher, a fact that hasn’t gone unnoticed by the world’s biggest shippers of liquefied gas, Royal Dutch Shell PLC (RDSA.LN), ConocoPhillips Corp. (COP) and Britain’s BG Group PLC (BG.LN), all of whom have highlighted the potential profits that could be made by selling U.S. gas to Asian customers.

However, domestic opposition in the U.S. to large-scale gas exports is growing there. In particular, industrial users and some members of Congress, who have cautioned that shipping the country’s plentiful supply of gas abroad risks another price increase for local consumers, cancelling out the burgeoning benefits of cheaper fuel and harming the nascent economic recovery.

Although the Department of Energy is expected to quickly approve requests to export LNG to countries with which the U.S. has free-trade ties, the DOE has been delaying decisions on sending gas to non-FTA countries until it completes the second of two studies on the potential domestic impact of exports.

Mr. Edano said he believed his country’s LNG needs could be met without harming U.S. domestic consumers.

“Of course, top priority is given to consuming the shale gas within the country that produces it,” said Mr. Edano.

But he said he was confident there was enough gas locked in the shale deposits of fields like the Marcellus and Barnett areas to send supplies abroad.

“U.S. shale gas has the potential to go much further than the purely domestic market,” said Mr. Edano. “There is plenty of room for it to export shale gas.”

– Alexis Flynn, Dow Jones Newswires

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