Traders gear up for U.S. shale gas

JIJI

Japan’s top trading firms are stepping up preparations to import shale gas from the United States, a move expected to ease skyrocketing procurement costs for liquefied natural gas driven by Tokyo’s verbal bludgeoning of the yen.

Lower LNG costs will help curb electricity rates that have soared since the loss of atomic power caused by the Fukushima disaster sent demand for fossil fuels soaring. Only two of Japan’s 50 reactors are running.

The trading firms are expected to start importing shale gas from the U.S. as early as 2017 if Washington approves exports to Japan in the first half of the year.

Sumitomo Corp. in 2009 became the first Japanese trading house to acquire shale gas interests in the U.S., starting with a development project in Texas.

Mitsui & Co. and Marubeni Corp. have since followed suit, while Itochu Corp. has acquired a major U.S. gas firm that owns several gas wells jointly with an investment fund.

Mitsui and Mitsubishi Corp. have separately teamed up with a U.S. firm to sell some 4 million tons each per year of U.S.-made LNG outside the country, starting in 2017. They also agreed to supply 200,000 tons each annually to Tokyo Electric Power Co. for about 20 years.

Sumitomo plans to import about 2.3 million tons of LNG per year starting in 2017, jointly with Tokyo Gas Co. Mitsubishi plans to start importing shale gas from Canada in 2019 through a local partnership partly owned by the company.

In 2012, Japan’s LNG imports surged 11.2 percent from the previous year to 87.31 million tons. But the value of the imports surged 25.4 percent to a whopping ¥6.004 trillion.

Import prices for LNG produced in areas including the Middle East are linked to crude oil prices and recently stand between $15 and $16 per million British thermal units. U.S. benchmark Henry Hub natural gas prices are much lower at between $3 and $5 per million Btu. The price gap is expected to make procurement costs for U.S. LNG 20 to 30 percent lower than in other areas, including the Middle East.

But a market source said, “LNG prices in the United States are likely to rise to around $6 per million Btu.”

Sumitomo President Kuniharu Nakamura said LNG procurement costs may go lower once the U.S. approves exports to Japan. “But it is difficult to predict a long-term outlook,” he said.