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U.S. shale gas alters Japan’s energy plans

Officials look for way to leverage savings in wake of Fukushima

by Miya Tanaka

Kyodo

Japan has made progress in its attempts to curtail soaring fuel costs since the 2011 Fukushima disaster and Washington on Friday gave it the green light to import cheap liquefied natural gas.

Since Japan is poor in natural resources, it has been longing to import U.S.-produced LNG emerging from the shale gas boom.

This is not only because the price of U.S. natural gas is around a quarter of what it is now paying for LNG imports, but also because it increases the nation’s bargaining power against other suppliers.

Japan imports LNG from Indonesia, Australia, Malaysia, and the Middle East, among other areas, and the pricing system varies depending on the source.

Japan, which can only import natural gas in liquefied form, has been purchasing the most expensive LNG in the world under long-term contracts linked to crude oil prices, which remain high.

The government has been increasingly wary about the impact of high fuel costs on the economy, particularly since the Fukushima nuclear disaster resulted in the loss of most atomic power, forcing utilities to return to thermal power generation.

LNG imports reached ¥6 trillion in 2012, compared with ¥3.5 trillion in 2010. Japan also suffered its first annual trade deficit in 31 years in 2011.

“I welcome from the bottom of my heart the U.S. approval of LNG exports,” trade minister Toshimitsu Motegi said Saturday.

The U.S. government restricts LNG exports to nations with which it does not have free-trade agreements, including Japan, examining whether each business project is consistent with public interest.

Japanese government documents showed in late April that three major projects involving Japanese companies in the U.S. mainland will provide about 15 million tons of LNG per year — nearly 20 percent of the annual import volume — under a North American pricing mechanism reflecting supply and demand for gas. The United States permitted one of the projects Friday.

It seems Japanese government officials are counting their chickens even before they hatch.

“Theoretically, we may be able to import LNG at two-thirds of the price paid now if we can buy shale gas,” an official of the Natural Resources and Energy Agency told a gathering of ruling party lawmakers last month.

Access to shale gas is also expected to help Japan squeeze a price cut from other resource-rich countries such as Russia, which is facing a decline in its share in the European market because LNG that was supposed to head to the United States from Qatar, the world’s largest LNG supplier, was redirected to Europe amid the U.S. shale gas boom.

Russia is turning to Asian countries as an attractive destination to export gas, but Russia and China have yet to reach an agreement despite years of price negotiations.

“In this kind of situation, it is possible for Japan to enjoy a relatively advantageous position (in negotiations),” the agency official said on a separate occasion.

But some experts are not as optimistic as government officials are over the prospects.

Jitsuro Terashima, president of the Japan Research Institute, said during an industry ministry panel meeting to discuss Japan’s medium- to long-term energy plan in April that he has some “doubts” over expecting “too much” from shale gas.

As LNG shipments from the United States will not start until 2017 at the earliest Terashima said U.S. gas prices could rise to about $7 per 1 million British thermal units by then from the current $4 or so.

“So if we add costs for liquefying, transportation and tolls (for LNG tankers) to pass through the Panama Canal . . . it may be a situation that poses the question of whether there is any advantage to us,” he said.

Hikaru Hiranuma, a researcher on resource and energy issues at the Tokyo Foundation, said the government appears to be lacking a resource strategy that foresees what might happen in the coming decades.

“If Japan had been involved in the development of shale gas in the United States from the 1970s, when technology development started, we may have had a chance to secure shale gas exports more smoothly than now,” he said. “But Japan at that time did not think shale gas could be economically produced.”

To avoid a similar situation for other energy sources, the researcher added that Japan should not be obsessed with shale gas alone, and should quickly start laying the groundwork to ensure access to other resources with potential to be commercialized in the United States, such as methane hydrate.

Meanwhile, the Japanese government acknowledges that there is no quick remedy to bring down the current hefty energy costs that are leading utilities to raise electricity rates across the board for households and companies.

“In the world of energy, it takes quite a long time to do even one thing because it often needs investment or requires change in (overall) structure,” another energy agency official said.

  • http://www.facebook.com/people/Jay-Que/1492720271 Jay Que

    The shale oil boom is the best news for the US in decades. No wonder the loser in this game, Russia – in loosening is stranglehold over energy starved Europe, is rumored to be a force behind the “grass roots antifrackers” much like the KGB’s support for the antinuke “grass roots demonstrations” of the early ’80′s.

    • Yoshiko

      Such dependence of Japan from USA oil supply in XXth century ends very badly for both – WW2. This can be the repeating of same mistake.

      • Rockne O’Bannon

        Haha. Yeah. Nothing has changed in the world since 1941. Let’s go back and learn our lessons from 1941. That will show us how to manage the future.
        Besides, this is GAS, not OIL, and Japan is not BECOMING DEPENDENT on it. It is using it for leverage against other suppliers. It is not using the gas for its navy, but to supply electricity to its people.
        I think you are superstitious and supercilious.

    • Yoshiko

      I can’t agree with that – all stability in Russia (the country with biggest nuclear/bio/chemical weapons arsenal) is based on selling the oil to other countries.

      So, do you really want the unstable Russia? The country with biggest nuclear weaspons arsenal? Such crises like in Syria, Lybia, Iraq and Afghanistan – combined – is like kindergarden in comparison with unstable nuclear Russia – the biggest territory on Earth with most destructive mobile(!) weapons, bio and chemical-weapons too and etc. If world starts buying the oil there’s no turning back, or we will get such worst future than anyone can even imagine.

      • Rockne O’Bannon

        Yeah. You’re right. Japan should be supporting Russia. Why hasn’t anyone thought of that?

        Oh. I know why. Because Russia still holds Japanese territory, and Russia has reneged on more than one energy deal in the past. Japan and Russia are still at war. You know that, right?

        It would be nice if Russia could sell some gas to Japan at good prices. If not, Japan can buy it from someone else. That is the way Russia wanted it. If they wanted to sell more, they certainly could.

    • Masa Chekov

      Best news only if you don’t care about the environment. The US should be pushing on with alternative fuels research for the future not developing old, dirty fuel sources. Be a leader.

      The idea that Russia is behind the anti-fracking movement is paranoid and fairly ridiculous.

      • Rockne O’Bannon

        Masa, if one just takes nuclear out of the equation, as many people do nowadays, you basically can generate electricity with coal or gas. Wind, solar, and whatever else is great if you are talking about 2030, but let’s talk about today, ok?

        Gas isn’t great, but it is better than coal. It is great to hope for a better non-carbon future for America, but while we are hoping, let’s realize that the shale gas boom might wind up doing the world more good than the Kyoto Accord.

        Sure America should be a leader, but it isn’t. Japan should have nuclear, but it doesn’t. Gas isn’t great, but we are better off with it than without it.

      • Masa Chekov

        No doubt gas is better than coal, Rockne. The shale gas boom removes a lot of economic incentive to develop non-carbon alternatives, though. We won’t be talking about 2030 but 2050 or beyond. Better than coal, but still not good.

      • Rockne O’Bannon

        We understand each other perfectly, Masa. The US needs a carbon tax, plain and simple.

        I have a lot of solar, which I got because energy is expensive, and people in the states are telling me that they cannot justify solar at all because gas is so cheap. And by cheap, that means “below world prices.” So in the US, just about the time that solar and wind companies have all failed, shale gas prices will about double, and the US will be almost back to where it started. This happens over and over in the US.
        The cheap gas also lets the US keep electricity rates way down, which is great, but all it does is get people to use more and put off cleaner energy efforts.

        I am trying to look on the bright side. Maybe a better LNG infrastructure complements future hydrogen development and renewable development anyway.

        Anyway, if the US sells more gas to Japan, that will raise their prices and lower Japan’s, so it is a win win.

  • Rockne O’Bannon

    With Japan, it is all about flexibility. Most other countries have energy choices and options all over the place. Brazil is probably the best example: hydro, biomass, biofuels, gas, etc.. Japan is all the way at the other end of the spectrum.

    Having just one more alternative can give it leverage to get better terms on all of its others. It can make better decisions on nuclear, get better contracts on its gas, and start closing down its coal-dependent generators for good.

    Thanks US. With this decision, at least Japan can start looking forward again instead of looking backward.

  • Guest

    Such dependence of Japan from USA oil supply in XXth century ends very badly for both. This can be the repeating of same mistake.

    • Rockne O’Bannon

      Are you kidding? What ended badly? Japan got Alaskan oil, the US got yen. Japan used the oil carefully and efficiently, the US was able to sell the resource without having to worry about processing it.

      Your comment makes no sense at all.

  • Helen Lambiase

    There’s always a risk of backlash against LNG terminals in the US.

    • Rockne O’Bannon

      In Louisiana? I wonder if there has ever been a backlash of any kind in Louisiana against the energy industry.

      And you know, it makes a lot of sense for the US, which has a HUGE trade deficit with the world, to pass up an opportunity to sell a resource that it has too much of to people who don’t have enough of it.

      If there is a backlash, it will be the US shooting itself in the foot. After all, if the gas does not get sold to Japan, it will just go to Monsanto.