Japanese Invest Big Money in U.S. Shale Gas

The Japanese have a huge appetite for U.S. shale gas and they’re investing big money to get access to it. Two Japanese and a French firm are putting up $1 billion of the $5 billion cost to build a liquefied natural gas (LNG) export terminal in Louisiana. Now all they need is government approval for the exports.

Japan has just turned off the last of 50 nuclear reactors that provided more than 30 percent of Japan’s electricity—and they desperately need replacement energy sources. Japan’s prime minister is pressuring President Obama to approve such exports, especially since Japan has voluntarily reduced its oil imports from Iran at our request.

A Wall Street Journal story yesterday looks at Japan’s interest in our shale gas, and in a new LNG export facility in Louisiana to be built by Sempra Energy.

Perhaps one of the most interesting comments in the WSJ story is about how natural gas imports are priced in Japan, and about their desire to change that pricing to be based on U.S. prices:

Natural gas commands a high price in Japan because it is linked to a basket of global petroleum prices. When oil prices surge, as they did recently, so does the price of the LNG that Japan imports.

"What we want…is to get out of the crude oil-linked pricing system," said Koichiro Age, gas purchasing manager for Osaka Gas Co., Japan’s second-largest gas utility by volume. He said Japanese companies want to link prices to the U.S. benchmark gas price known as Henry Hub and believe they will have this opportunity for lower prices when entering into new contracts with companies offering LNG from the U.S.

Sempra estimates it would cost gas exporters using its plant between $8 and $9 a million BTUs to get LNG to Japan today—$2 to $3 for the gas and roughly $6 to liquefy it and transport it. If LNG is selling for $16 in Japan, it means a savings of between $7 and $8 a million BTUs. LNG sellers would be able to offer the gas below prevailing prices, benefitting Japanese utilities and consumers.*

Sources tell MDN that pegging prices to the Henry Hub has far-reaching implications. It certainly looks like the U.S. and Japan are about to get a lot cozier than they have been in years, and it’s all because of hydraulic fracturing and shale gas.

Click the link below to read the entire WSJ story.

*Wall Street Journal (May 24, 2012) – Japanese Buyers Line Up for U.S. Shale Gas