LNG Japan sets the pace in North America

Theodore Michael's picture
Theodore Michael, LNG Analyst, Genscape
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Japan pioneered North American LNG exports backing the Kenai Alaska LNG export facility in 1969.  Today new opportunity unfolds across the continent as low-cost shale gas, a strong legal structure and flexible contractual terms have made North America, Japan’s second largest gas supplier, second only to Australia.

Low cost, gas indexed, destination clause free, and bypassing the Majors; Japanese trade houses, utilities and industrials have set the pace, holding equity and capacity in the three of the five LNG projects currently under construction.  Backed by Japanese finance houses and the Japan Bank for International Cooperation, Japanese gas and powergen seek supply security at all points of the compass.

Using first mover advantage Japanese investors and capacity holders bought into low-cost US brownfield projects.  Starting on the US East Coast at Dominion’s Cove Point (2.3 mtpa) heading to the Gulf of Mexico there are a string of equity investments and capacity purchase at Cameron (9 mtpa) and Freeport (6.6 mtpa).  All three export facilities are former regas projects.  As brownfield projects, they have lower costs ranging from $550 to $800 a ton.

A new era: The Panama Canal and deregulation in Japan: Japan’s 4th Strategic Energy Plan (SEP) focuses on the security of supply. Positioning Japan to seek LNG outside the Persian Gulf and indexed to gas.  US Henry Hub gas indexing provides supply diversity and a hedge against rising oil prices.

The Ministry of Economy, Trade, and Industry (METI) projects 70% of Japan’s LNG imports will come from Australia and North America. To date, under the backing of The Japan Bank for International Cooperation Japanese banks have financed nearly 10 billion in US capital projects.

Unlike the Cheniere projects which sell LNG FOB or DES, the Japanese financed projects sell liquefaction capacity only under Liquefaction Tolling Agreements (LTA).  The buyers of LTA capacity must source their own feed gas, schedule their own pipeline capacity and charter their own shipping.

Sogo Shosha LNG:  Guiding Japanese utilities and overseas power projects: One preferred acquisition and management model leans heavily on Japanese trade houses, the Sogo Shosha such as Sumitomo at Cove Point, Mitsui and Mitsubishi at Cameron.  Recently JERA and Itochu each announced 1.5 mtpa purchase of capacity at the Jordan Cove Coos Bay facility in Oregon. These trade houses manage gas procurement and ship chartering. At Freeport we see yet another model as industrialist such as Toshiba have a secure gas supply for Latin American power gen projects. Far to the north The Japan Bank for International Cooperation has backed REI a municipal utility joint venture of Hyogo Prefecture and Kyoto Prefectures, as they seek to utilize stranded gas at Alaska’s Cook Inlet for an LNG export facility.

Join the Conversation: As Theodore said, Japanese banks have financed about 10 billion in US capital projects, how will the US-Japan alliance evolve? Leave your comments below.

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Image Courtesy of Genscape: Cameron LNG facility