Japan could end up taking 10mn tonnes a year of US liquefied natural gas (LNG), helping ease tight supplies for the fuel in Asia, the head of trading at Chubu Electric Power Co said.
LNG imports by Japan, the world’s top buyer of the super-cooled fuel, have jumped since the Fukushima nuclear disaster, and Asian utilities have been looking to boost supplies from North America to diversify sources and lower near record prices.
Japan, South Korea, Taiwan and China bought 70% of global LNG last year, paying up to five times as much for their liquefied imports as US buyers pay for piped gas.
South Korea could take 5mn tonnes of US LNG a year, said Hiroki Sato of Chubu Electric, the world’s third-largest buyer of LNG.
“The most important thing for key Asian players is to increase liquidity in the global market,” Sato said in an interview at the LNG Suppliers to Asian Markets conference.
Asian LNG spot prices, which are linked to oil prices, are currently more than four times as expensive as US Henry Hub prices. Importers argue that de-linking gas prices from oil would secure more competitive prices.
Sato estimated that if Henry Hub trades around $4 per million British thermal units (mmBtu), a gas-linked landed price in Japan would be around $12 per mmBtu, including around $3 per mmBtu in transportation cost.
“The current average price for Japan is $16, which would mean a 20-30% discount,” Sato said, although adding that he did not think US gas prices would stay at such low levels.
“When the US starts exporting LNG, the domestic gas price will gradually increase,” he said.
The US government’s Energy Information Administration forecast in December that Henry Hub gas prices would slowly rise to around $7 per mmBtu by 2035.
The shale gas boom in the US could turn it into a major exporter of LNG, with industry analysts putting US shipments at around 60mn tonnes a year by 2020.
Up to a dozen long-term deals, each worth billions of dollars, have been signed in recent months by Asian and European companies looking to buy US LNG, according to sources.
But even though more than 30 export terminals have been proposed, only one has received final authorisation for construction and the issue remains politically sensitive.
“Demand for natural gas in the US will rise, and the export volumes, I think, will be very limited,” Sato said.
Chubu Electric and Osaka Gas Co said they plan to invest about $600mn each for individual stakes of 25% in a gas export facility at the Freeport LNG gas project in Texas.
Output from Freeport’s 4.4mn tonnes-per-year first train, which is expected to start in 2018, had earlier been sold to Osaka Gas and Chubu Electric. The Freeport project, just south of Houston, got conditional approval to export last May.
To increase liquidity, Sato said joint procurement and removal of destination clauses were also necessary. Chubu Electric last year agreed to jointly buy LNG with Korea Gas Corp (KOGAS), and is working on a similar deal with India’s GAIL.
“Joint procurement gives buyers more flexibility to swap volumes. And, furthermore, the aggregated volumes lead to a more competitive price,” Sato said.
Last month, Japan’s Tokyo Electric Power Co (Tepco) proposed to rope in domestic and foreign companies to procure jointly up to 40mn tonnes a year of LNG. Sato said the company had not been approached by TepCo.
Chubu Electric’s LNG imports will remain unchanged in the fiscal year starting in April at 14mn tonnes, Sato said.