Bloomberg News

Abe Will Ask Obama for Shale Exports as Japan’s Gas Bill Soars

February 20, 2013

Japan’s Abe Plans to Ask Obama to Approve Shale Gas Exports

Japan, the world’s biggest importer of liquefied natural gas, paid an average of 67,210 yen a metric ton for LNG in December, according to data from the country’s Ministry of Finance. Photographer: Tomohiro Ohsumi/Bloomberg

Japanese Prime Minister Shinzo Abe will ask U.S. President Barack Obama to allow shale gas exports as the world’s third-largest economy grapples with soaring energy costs after 2011’s nuclear disaster closed reactors.

The request will be made at a meeting tomorrow between Abe and Obama in Washington, said three Japanese officials, who declined to be identified because the information isn’t public. The bill for importing liquefied natural gas, combined with a weaker yen, prompted Japan to post a record trade deficit in January of 1.63 trillion yen ($17.4 billion), the Finance Ministry said yesterday.

The switch from nuclear to gas-fired generation after the accident at Fukushima forced Japan to increase LNG imports 11 percent last year. Abe wants Obama to share the benefit of surging output from shale fields, which has depressed the cost of U.S. gas to about 20 percent of Asian prices, by approving export terminals. Some U.S. politicians oppose shipments overseas because the lower energy costs are making manufacturers more competitive, helping to create factory jobs.

“Since Fukushima, Japan has dramatically increased its energy imports,” said Mark Lewis, a Paris-based analyst at Deutsche Bank AG. “They are desperately looking for cheaper imported sources of energy supply.”

Japan is the world’s largest importer of LNG, gas cooled to to a liquid for shipment by tankers, and cargoes from North America would allow it to diversify from suppliers in Asia and the Middle East. Tokyo Electric Power Co., Japan’s largest utility, Chubu Electric Power Co. and trading company Sumitomo Corp. all have agreements to buy LNG from proposed export plants that have yet to win government approval.

Sabine Pass

The U.S. has only approved one export plant for shipments to countries without a free-trade agreement. Cheniere Energy Inc.’s plant at Sabine Pass is due to begin exports in 2015. The U.S. may ship about 50 million tons of LNG by the end of the decade, Royal Dutch Shell Plc Chief Executive Officer Peter Voser said last month. That compares with 77 million tons a year from Qatar, currently the world’s top exporter.

Japan paid an average of 67,210 yen a metric ton for LNG in December, according to data from the country’s Ministry of Finance. That’s equivalent to $15.79 per million British thermal units. U.S. gas futures traded in New York hit a 10-year low in April of less than $2 per million Btus. The gas price rose 0.2 percent to $3.3 per million Btus today.

Importing U.S. gas would boost Japanese utilities’ bargaining power in negotiations with suppliers who benchmark their prices against more-expensive oil, said Reiji Ogino, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co. Utilities have sought government approval to raise electricity prices and pass on the burden of higher fuel bills to consumers.

Nuclear Test

The agenda for Abe’s talks with Obama also include North Korea’s recent nuclear test and Japan’s participation in the proposed Trans-Pacific Partnership free trade pact, the officials said.

The use of hydraulic fracturing, a process that injects a pressurized mix of water, sand and chemicals into wells to open cracks in shale rock and allow gas to flow out, started to reverse a decline in U.S. production about 7 years ago. Since the start of 2006, gas output has grown 33 percent, according to the Department of Energy.

Opponents to U.S. exports include Representative Edward Markey of Massachusetts and Senator Ron Wyden of Oregon, who say U.S. consumers and manufacturers will be forced to pay higher energy prices.

LNG exports would have “net economic benefits” for the U.S., according to a study conducted by NERA Economic Consulting on behalf of the U.S. Department of Energy.

Crippled Plant

Tokyo Electric, the owner of the crippled Fukushima Dai- Ichi nuclear plant, plans to buy 800,000 tons of LNG from the Cameron project in Louisiana for 20 years starting in 2017, it said earlier this month.

Chubu Electric, Japan’s third-largest power company, and Osaka Gas Co. announced 20-year contracts in July with Houston- based Freeport LNG Development LP to export 4.4 million ton of LNG from the proposed facility in Texas starting in 2017.

Sumitomo, Japan’s third-biggest trading company, and Tokyo Gas Co. agreed in April to buy 2.3 million tons of LNG for 20 years from Dominion Resources Inc.’s planned Cove Point terminal in Maryland, due to start in 2017.

“How we can buy LNG is an important factor for Japan’s government to tackle with the private sector,” Yukio Edano, then trade minister, said on Sept. 18. “Procuring the fuel at low cost, has become a key challenge for us.”

Japan’s LNG imports rose to a record in 2012 as the country increased its dependence on gas-fired power plants to make up for lost nuclear generation. The country’s LNG imports rose 11 percent to 87.3 million metric tons last year, the Ministry of Finance said Jan. 24.

Japan’s NHK television reported Feb. 19 that Abe would ask Obama to clear shale gas exports.

To contact the reporters on this story: Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net; Sally Bakewell in London at sbakewell1@bloomberg.net

To contact the editors responsible for this story: Jason Rogers at jrogers73@bloomberg.net; Peter Langan at plangan@bloomberg.net


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