By BEN LEFEBVRE
Tokyo Electric Power Co. is nearing completion of a deal to
import 800,000 tpy of liquefied natural gas from the US
starting in 2017, a new sign of the impact North American shale
is already having in global energy markets.
The proposed 20-year deal between Tokyo Electric, also known
as Tepco, and potential LNG supplier Cameron LNG, follows
contracts Cheniere Energy has inked with Korea Gas Corp. and
Utilities in energy-strapped Japan have become eager to tap
into US shale gas, which hydraulic fracturing has made abundant
and cheap. The interest is heightened by a steep reduction in
their use of nuclear power in the wake of the Fukushima
Tepco said in a press release the natural gas it buys from
Cameron would be linked to US natural gas price benchmark Henry
Hub, which closed Wednesday at $3.42/MMBtu.
Buying US gas would allow Tepco to diversify its sources of LNG
and to tie the price of part of the natural
gas it consumes to US prices, which are seen as more stable
than the oil price benchmark most LNG trades at. Currently,
Tepco buys most of its LNG from Brunei, Malaysia and other
The deal could have wider repercussions in the global LNG
market by helping break the link between oil and LNG and
eventually helping to bring world LNG prices down, said
Macquarie Research energy analyst Vikas Dwivedi.
"The fact that you're moving away from that oil-linked
formula, over time you will move away from oil-linked price,"
Mr. Dwivedi said.
Currently no infrastructure to liquefy and export natural
gas exists in the lower 48 US states, but Cameron and many
other companies are building or planning natural
gas export terminals.
Cameron, an affiliate of Sempra Energy, operates a $900 million
import terminal near the US Gulf Coast in Hackberry, La.
Cameron expects to finish converting the terminal to export up
to 12 million tpy of gas by the end of 2017.
But potential exporters must first clear regulatory hurdles,
including obtaining government permission to export the gas to
countries not in a free-trade agreement with the US, a group
that includes Japan. So far only Cheniere has received
government approval to actually ship the gas to much of the
world, and its terminal to export LNG out of Louisiana is
scheduled to be ready in 2015.
Tepco said it would rely on Japanese trading firms Mitsui
and Mitsubishi to each transport 400,000 tons of contracted gas
every year. The natural gas would come from various shale
plays, Tepco said.
Tepco and other Japanese power companies are dependent on
natural gas imports to generate electricity. The Japanese
government shut down most nuclear power generators after a
March 2011 tsunami caused Tepco's Fukushima Daiichi nuclear
plant to undergo a reactor meltdown.
Cameron didn't respond to requests for comment.
Tepco imported about 24 million tons of LNG
in 2011, nearly a quarter of the total brought into Japan, the
company said. The company was seeking to buy another 1.2
million tpy of natural
gas but did not say where it was looking.
Dow Jones Newswires