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Japan takes ownership stakes in LNG export projects across globe

Larry Persily

ANALYSIS: Japan has been importing liquefied natural gas since 1969, starting with its first shipment from Alaska and expanding its supplier base over the years to 17 nations in 2011. But many of its supply contracts, with extensions, date from the 1970s and 1980s and will expire over the next decade, pushing buyers to negotiate new deals.

"Some industry analysts suggest that this is driving Japanese firms' interest in acquiring equity stakes in foreign liquefaction projects, in an effort to guarantee future supply," said a country analysis on Japan the U.S. Energy Information Administration updated June 4.

Japanese firms (utilities, oil and gas producers, and trading companies) own stakes in five LNG export projects in Australia — one that went online this year and four others under or ready to start construction. They also hold equity shares in operating and proposed projects in Russia, Indonesia and Canada, plus ownership in several more gas plays worldwide that could develop into LNG export operations.

Last year Japan set a record for LNG imports, with a further 10 percent gain expected this year to an average 12 billion cubic feet of gas per day, according to the chairman of the Japan Gas Association. The increased demand is due to losing its nuclear power capability, as the nation is struggling to decide if, when and how to bring nuclear plants back online following the March 2011 Fukushima disaster.

"Some industry sources predict Japan will resume operation of a few reactors by the end of summer 2012," the EIA brief said. The last of Japan's 50 reactors went offline in May. Before the earthquake and tsunami, nuclear power supplied 27 percent of the nation's electricity. Japan's history with nuclear power goes back further than its start of LNG imports; the first nuclear plant went online in 1966.

The country was expanding its reliance on nuclear power when the Fukushima disaster struck — two nuclear power plants are under construction and scheduled to start service in 2014, adding more electrical generating capacity (2.7 gigawatts) than the Hoover Dam.

Even with the steady build-up over the years of nuclear power, Japan still relied substantially on oil, coal and natural gas to generate electricity. Fossil fuels provided 63 percent of the nation's electricity in 2010, with the heaviest reliance on gas and coal. Oil was burned primarily to meet peak demand. The reliance on fossil fuels grew to 73 percent in the first quarter of 2012, while some nuclear plants were still in service.

Just as Japan used a diversified portfolio of power generating fuels, so too it used a diversified mix of LNG suppliers. "The country has a fairly balanced portfolio with no one supplier having a market share greater than roughly 20 percent," according to the EIA brief. LNG deliveries last year came in from Southeast Asia (Malaysia, Indonesia, Brunei) Australia, the Middle East (Qatar, United Arab Emirates, Oman, Yemen), Russia, Africa (Algeria, Egypt, Nigeria, Equatorial Guinea), Norway, Trinidad and Tobago, Peru, and a bit from Alaska.

Oil, however, was the fuel of choice back in the 1970s, before the LNG market developed. Oil's share of Japan's total energy consumption was about 80 percent in the 1970s, declining to half that level in 2010, the EIA said. Which helps to explain why the price of LNG imported into Japan under long-term contracts is indexed to oil, the substitute fossil fuel to burn for electricity.

But the increasing demand on gas-fired power plants is nearing its limit, the EIA brief said. "Capacity utilization in gas-fired power facilities is close to 80 percent, so increasing LNG use in the short term is limited." Oil-fired plants, however, were running at 50 percent capacity before the quake, the EIA said, giving utilities the immediate ability to burn more crude and fuel oil to replace lost nuclear power.

To help ease the crunch longer term, three new gas-fired power plants are scheduled to come online by 2016. In addition, three coal-fired plants are under construction, too.

Larry Persily is Federal Coordinator for Alaska Natural Gas Transportation Projects in Washington, D.C. Contact Persily at lpersily(at)arcticgas.gov. Alaska Dispatch encourages a diversity of opinion and community perspectives. The opinions expressed herein are those of the contributor and are not necessarily endorsed or condoned by Alaska Dispatch.