LNG market starting to globalize

Opportunities opening up..

From WSJ:
Crisis in Japan Transforms Global Natural-Gas Market

Just as the U.S. is preparing to crank up sales of its vast natural-gas supplies abroad, the global market is being reshaped by Japan—which is suddenly retreating from nuclear power after last year’s earthquake.

The island nation produces less than 4% of the gas it consumes and must import the rest by ship, a complex and costly process.

North America is seeing the first stirrings of projects aiming to sell newly uncovered natural gas supplies to Japan and elsewhere in Asia.  Australia, Japan’s Inpex Corp. and France’s Total SA in mid-January gave the green light for a $34 billion plan to develop one of the world’s biggest offshore fields. As far away as Mozambique, Japanese companies are buying rights to natural gas with the home market in mind.

“The environment surrounding energy has dramatically changed since March 11,” said Tsuyoshi Okamoto, president of Tokyo Gas Co., Japan’s largest gas utility.

On that date in 2011, the Fukushima Daiichi nuclear plant was hit by the earthquake and a tsunami, leading to meltdowns and explosions. Since then, other reactors across Japan that shut down for regular inspections have stayed offline.

The nation now has just three of its 54 nuclear reactors operating, with the last one set to stop in April or May. The government hasn’t set a target date for restarts. Japan’s industry minister says people should be prepared for a summer without nuclear power, a shift that has virtually no precedent among developed nations in peacetime. As recently as 2010, nuclear reactors supplied 30% of Japan’s electricity.

Already, Japan’s electric-power companies boosted imports of natural gas by some $7.5 billion in the final three quarters of 2011.

Those imports, along with industrial shutdowns stemming from the earthquake, helped push Japan into its first trade deficit in more than three decades.

On Monday, Japan’s utilities reported another sharp increase in liquefied natural gas imports, saying they received 5.19 million tons of LNG in January, up 39% from the same month a year earlier.

It isn’t just Japan. Nations in Europe and Asia are looking to expand gas imports as well, in some cases because of a turn away from nuclear power.

Germany, which has said it will shut down its nuclear plants by 2022, opened a new gas pipeline from Russia in November. In Britain, where nuclear expansion plans have slowed down after Fukushima, BG Group PLC has signed a contract to import U.S. natural gas, and companies are exploring for new supplies.

The growing demand for natural gas around the globe coincides with a transformation of the U.S. market for the fuel thanks to the unlocking of gas in long-untapped shale formations. Officials in Washington expect the U.S. to turn into a net gas exporter over the next few years.

Exporters can take advantage of a gaping price difference. In the U.S. natural gas goes for about $2.50 per million British thermal units. The price in Japan for the same quantity is about $16.

There is one problem: To get natural gas to Asia, energy companies must supercool the fuel and convert it to liquid form, then carry it on tankers across the ocean, where it must be converted back into natural gas. It isn’t cheap.

U.S. companies are looking at building export terminals in at least eight locations. Cheniere Energy Inc. is furthest along with its project at Sabine Pass, La., and Cheniere agreed Jan. 30 to sell 3.5 million tons per year of gas to Korea Gas Corp.

Even after the investment in export terminals and LNG carriers, “you can make profit by selling the LNG around $12 to $13” in Japan, said Koichi Muto, president of Mitsui OSK Lines Ltd., the world’s largest LNG carrier by capacity.

Japan already was the world’s biggest importer of liquefied natural gas before the earthquake upended its nuclear industry. Malaysia, Qatar and Australia were among its top suppliers. In 2011, its LNG imports rose 12% to 78.5 million metric tons, according to government figures. This year could see another double-digit rise, Eurasia Group analysts predict.

Though it is a fossil fuel that contributes to greenhouse gases, Japanese users see natural gas as cleaner than coal, less expensive than oil and more readily available than sun or wind power.

A consortium led by trading company Mitsubishi Corp. already owns a 50% stake in the Cordova shale gas project in the northern part of British Columbia. Mitsubishi chief financial officer Ryoichi Ueda said the company is looking to bulk up its North American natural-gas assets. “We plan to turn it into LNG and deliver it to East Asia,” he said.

Canada is pushing to export liquefied natural gas from its West Coast, and has already issued LNG export licenses to two projects on the Pacific coast near Kitimat, British Columbia.

Its natural resources minister, Joe Oliver, late last year touted their prospects on a visit to Tokyo. “These projects would greatly diversify Canada’s export markets for natural gas,” he said. “It would also help meet demand for energy in Japan.”

Japan’s choices are sure to have geopolitical consequences. Tokyo’s sometimes-chilly relations with neighbor South Korea have grown warmer, in part because the nations share an interest in finding lower-priced LNG.

In Australia, Japan’s partially government-owned Inpex is investing nearly $25 billion over five years in a huge offshore field called Ichthys. The gas would be sent by a 550-mile pipeline to Darwin, Australia, turned into LNG and shipped to Japan.

“We can’t secure stable supply by just waiting for developers coming up with cargoes to the market,” said Inpex President Toshiaki Kitamura. Instead, he said, Japan needs to get direct ownership of the fuel.

Japan’s existing suppliers, particularly Qatar and Australia, can deliver more LNG, but decades-old arrangements with those suppliers have often locked Japan into an LNG price tied to the price of oil, which has surged.

The decline of nuclear power has raised the urgency in Japan of finding cheaper fuel.

Mitsui & Co. in November said it hopes to sell roughly five million tons a year of LNG from a field off the Mozambique coast to Japanese customers, or half of the project’s planned output in its first phase.

Mitsui has been talking to prospective buyers and “we have received positive responses, because it would help diversify LNG sources,” a spokesman said.

The Japanese company has a 20% stake in what project operator Anadarko Petroleum Corp. says are deposits of at least 30 trillion cubic feet of gas offshore the southeast African country.

Write to Mari Iwata at mari.iwata@dowjones.com and Peter Landers at peter.landers@wsj.com