Bloomberg News

Tokyo Gas Sees LNG Cost Control in Majority Project Stakes (1)

October 15, 2013

Tokyo Gas Co. (9531) is seeking to take majority stakes in liquefied natural gas projects in Southeast Asia or Africa as it seeks to reduce the cost of imports.

Japan’s biggest gas supplier is interested in plants that can produce as much as 3 million metric tons a year of LNG, according to Shigeru Muraki, an executive vice president. It can have more operational control with a share in such “mid-sized” projects, rather than large ones, he said in an interview yesterday. By comparison, Chevron Corp. (CVX:US)’s planned Wheatstone facility in Western Australia will have an initial annual capacity of 8.9 million tons.

“We can probably team up with other Japanese companies such as JGC Corp. (1963) or Chiyoda Corp. (6366),” Muraki said at the World Energy Congress in Daegu, South Korea.

Bringing down LNG prices is a pressing issue for Japan, where the super-chilled fuel costs four times as much as in the U.S., Toshimitsu Motegi, the trade and industry minister, said in Tokyo in September. The country paid an average $16.37 per million British thermal units for LNG in July, according to data from LNG Japan Corp. That compares with about $3.64 in the same month for U.S. natural gas futures traded in New York.

Tokyo Gas’s operating expenses surged 9.3 percent in the quarter ended June 30 amid higher import costs for LNG, a raw material used for city-gas supplies. The company plans to diversify its LNG supply sources by 2020 to mitigate the risk of price fluctuations, according to its long-term management plan released in November 2011.

Olympic Effect

Tokyo Gas expects its LNG imports to rise by 14 percent to 12.1 million tons in the fiscal year that will end in March 2018, as its sales grow at a projected annual rate of 3 percent, the company said in a statement in March. It imported 10.7 million tons in the 12 months to March this year.

Gas sales are forecast at 22 billion cubic meters in 2020, according to the management plan.

“There is a chance our gas sales may exceed the target because of the Olympic Games,” Muraki said on the sidelines of the triennial energy conference. “It really depends on how Japan’s economic environment gets supported. And it’s also up to how gas demand for power generation and other industrial sectors will grow.”

Japan’s capital will host the nation’s fourth Olympics in 2020. This follows the Tokyo summer games in 1964 and the winter games in Sapporo in 1972 and Nagano in 1998.

LNG Trading

Tokyo Gas, which plans to purchase 1.4 million tons of LNG from the Cove Point terminal in the U.S. state of Maryland, is also considering trading the fuel with buyers in Europe.

“The purpose of the LNG trade is to adjust supply and gas demand in Japan,” Muraki said. “We believe we can minimize the big difference in prices by connecting the two markets in the east and west.”

Meantime, Tokyo Gas may help Tokyo Electric Power Co. (9501), or Tepco, to replace old gas-fired and oil-fired thermal power plants. Tepco is facing significant compensation payments after the March 2011 earthquake and tsunami that crippled the Fukushima Dai-Ichi nuclear power station, and increasing costs required to decommission reactors and contain the leakage of contaminated water.

“Some of Tepco’s oil gas-fired plants are using steam turbines, which is not efficient enough,” Muraki said. “Efficiency will improve 50 percent if they change them to combined-cycle ones.”

Aging power plants on the coast of Tokyo Bay, such as Goi, Anegasaki and Minami Yokohama, can be jointly replaced with the utility, he said. Tepco’s oldest generator, at the Goi power station in Chiba prefecture, started operations in 1963, according to data on the company’s website.

To contact the reporter on this story: Yuji Okada in Tokyo at yokada6@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net


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