Sunday, December 9, 2012

More LNG Imports On the Way

We have heard that it will take a decade or more for Japan to modify its LNG import pricing structures, diversify supply, and deal with the issues raised by the current shut down of its nuclear plants, which seems likely to drag on, and on.  Well, maybe things can happen a bit faster than that.

1.  Jiji Press (via Yomiuri) reported this week the first shipment ever of LNG to Japan by Russia's Gazprom, via the Arctic Ocean.  The tanker left Norway on November 7 and arrived in KitaKyushu on December 5.  With global warning, a new, shorter shipping route is opened.  Of course, LNG losses during shipment can be cut significantly by a shorter routes, and by shipping in colder temperatures.  Also, if the LNG plant is in a cold location, there is a significant cost saving in the liquefaction process, if memory serves.

2.  Osaka Gas announced plans gradually to increase its LNG imports by 25% (to 10 million metric tons annually) over the next 7-8 years, primarily for use in electricity generation.  Sources are expected to include new gas supply from west Africa, and also U.S. supply made possible by the shale gas boom.

3.  Friday December 7's Nikkei reports various plans by Japanese companies to import LNG from the U.S., based on a new U.S. DOE report that LNG exports would be economically beneficial to the U.S. -- an issue that remains controversial.  U.S. natural gas production has increased by approximately 30% from 2005 through 2011, mostly as a result of new shale gas production, and prices are through the floor.  The Washington Post had has a series of articles about these developments, caused by the shale gas boom, including one featuring the DOE report and plans to build export facilities at Cove Point, Maryland, based upon demand from Japan.

Specific potential export sites and Japanese companies involved by Nikkei include:

1.  Freeport LNG (Texas).  4.4 million metric tons per year.  Osaka Gas and Chubu Electric.
2.  Cameron LNG (Louisiana).  8 million metric tons per year.  Mitsubishi Corporation and Mitsui & Co., Ltd.
3.  Cove Point LNG Project (Maryland).  2.3 million metric tons per year.  Tokyo Gas, Sumitomo Corporation.

Of course, note that these projects are at existing re-gasification import terminals, require construction of major infrastructure to support liquefaction for export, and that they are all on the Atlantic side of the U.S.  ...   

But as I understand it, this business can involve swapping cargoes, so that, for example, a Japanese trading house that has rights to gas from Louisiana, could enter into a long term swap with a customer who wants to ship it to somewhere on the Atlantic basin, in exchange for a Pacific cargo close to Japan (maybe from Norway via the Arctic, or from Chile, Malaysia, Indonesia, or NW Shelf Australia, and even eventually Alaska).

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