01-10-2018

Feature: US LNG sources fit with Japan’s desire for route diversity: minister

Japan views US LNG imports as a source of diversity as it looks to expand supply routes beyond a dominant path from the south, a top Japanese official said Wednesday.

“The biggest concern we have in terms of energy security is the fact that much of the energy comes from the southern route,” said Minister of Economy, Trade and Industry Hiroshige Seko in an interview with S&P Global Platts Wednesday, discussing the outlook for Japanese LNG supplies.

“From the viewpoint of diversifying our sources from diverse routes, the LNG imports from the United States will be important,” he said.

Over the past five years, Japanese companies have been a major supporter of expansion of US LNG export capacity, booking over 18.7 mt/year (2.5 Bcf/d), either through long-term offtake contracts or direct investment in the facilities, according to S&P Global Platts Analytics.

SECOND-WAVE PROJECTS
One open question is how much more Japanese buyers might take up as a second wave of US projects seeks to get off the ground; Japanese LNG demand is expected to remain flat to declining through the mid-2020s.

The US has two completed export terminals, and three more are under construction along the Gulf and Atlantic coasts. Another four Gulf Coast facilities have regulatory approval and await financing decisions. Still 13 more, totaling about 23.6 Bcf/d, have been proposed, with two offering direct access to the Pacific and the rest mostly on the Gulf Coast.

The southern route referred to by METI entails traffic from Europe and the Middle East through the Suez Canal and Strait of Malacca or South China Sea to East Asia.

Seko said he was encouraged by improvements in the Panama Canal that will allow larger tanker traffic from the US.

“In the final analysis, it would be the impact upon the cost — so we are always looking for procurement of the resource at the lowest cost possible,” he said.

Ultimately, further purchasing decisions will be made by private Japanese businesses based on economic considerations, he said, although the Japanese government can help reinforce trading conditions with supplier countries.

Seko also noted that US supplies are free from destination restrictions, which Japan has been working to see eliminated in LNG markets.

TRADE TALKS
The Trump administration has previously applied pressure on trading partners to increase LNG purchases as a way to take down trade deficits.

President Donald Trump told reporters Wednesday that Japan is “doubling the amount [of LNG] they’re going to be buying for Japan.” That appears to be a reference to growing Japanese volumes of LNG already under contract, as exports ramp up from US projects entering service.

Direct LNG sales to Japan are not the only way to boost LNG sales, Seko suggested.

“It’s not only a matter of exporting [US] LNG to Japan, because there is a broader Asia out there whose growth is remarkably high and they are introducing very significantly LNG-based thermal power plants — so the key will be how to increase the demand coming from Asia,” he said.

Seko called attention to areas where Japan and the US are already increasing cooperation on energy market development, for instance through agreements to help spur infrastructure in Southeast Asia and South Asia.

The US and Japan in November 2017 launched the Japan US Strategic Energy Partnership, pledging to cooperate on promoting advanced nuclear technologies, coal technologies, global gas and energy infrastructure, and designating Southeast Asia, South Asia and Sub-Saharan Africa as important regions.

Seko was in the US this week for trade talks as well as a visit to the Dominion Energy Cove Point LNG project, from which Sumitomo and Tokyo Gas buy LNG under a long-term contract.

Trump and Japanese Prime Minister Shinzo Abe on Wednesday agreed to enter bilateral negotiations aimed at reaching a trade agreement.

FLAT DEMAND
Despite holding the position as the world’s largest LNG importer, Japanese LNG demand has remained fairly stagnant this year, averaging roughly 11.2 Bcf/d based on cFlow ship tracking data collected by Platts Analytics, roughly in line with last year. With a number of nuclear power plants restarting operations, much of the incremental LNG supply will likely serve to backfill long-term supply contracts rolling off over the next five years.

Japanese estimates suggest natural gas will make up 18% of the country’s primary energy supply in 2030, down from 25% in 2016.

The combination of contractual over-commitment, slowing domestic demand growth and downstream market deregulation is encouraging Japanese LNG stakeholders to support demand growth in other Asian markets. Japan is seen as supportive of its major trading companies seeking to re-market LNG supplies.
Source: Platts

Previous Next
 

Huge Opportunities For Investment in Maritime Sector: Nitin Gadkari

View More Videos


Gallery

India Shipping and Offshore Summit

View All Albums