Japan Negotiates to Buy Marcellus Gas

Japan needs natural gas and they need it badly. After the Fukushima nuclear disaster last year, Japan has shut down 49 of their 50 nuclear reactors. That spells an impending shortage of electricity in the country. One of the ways to make it up is by using natural gas. Natural gas currently costs over $17 per million BTUs (mmBtu) in Asia. The U.S. commodity price of natural gas is currently under $2 mmBtu. So Japanese trading house Sumitomo Corp and Tokyo Gas Co Ltd are in talks with Dominion Resources to import up to 2.3 million tons of liquefied natural gas (LNG) per year for 20 years starting in 2017.

Sumitomo said it had signed a preliminary agreement with Dominion Resources that would lead to the right to buy LNG produced at a 5-million-tonne-per-year gas liquefaction facility to be built by Dominion at the Cove Point project in Maryland, and that Tokyo Gas would join Sumitomo when a formal contract was signed.

The Japanese companies added that they were considering sourcing feedstock from the Marcellus shale gas project in which Sumitomo is participating.

If the project receives formal U.S. government approval in 2017, its shipments to Japan will likely be priced at less than $10/mmBtu, said Kunio Nohata, senior general manager of gas resources department at Tokyo Gas, well below current Asian prices at around $17/mmBtu.

The LNG output could be exported to anywhere in the world, he added.*

*Reuters (Apr 27, 2012) – Sumitomo, Tokyo Gas in talks for U.S. LNG imports