By MARI IWATA
TOKYO -- Japanese liquefied natural gas buyers see US
government approval for an LNG facility in Texas to export gas
to countries with which it doesn't have free-trade agreements
as a step forward in the creation of a spot market for the
clean-burning fuel in Asia.
Cargoes from the Freeport LNG export terminal "will help
bring about structural changes to the Asian LNG market," a
Chubu Electric Power Co. spokesman said Monday by
Freeport LNG has signed preliminary 20-year contracts to
sell the supercooled gas to two Japanese buyers -- Chubu
Electric and Osaka Gas. The deal was contingent on government
approval for non-FTA countries, including Japan.
Optimism in the US over
the prospect of energy self-sufficiency after domestic natural
gas production surged in recent years thanks to new drilling
techniques quickly gave way to concerns about a glut that was
driving prices lower, then hopes that new markets could be
tapped in Asia, where the price of gas is a multiple of the
fuel's price in the US.
But the future of exports hinges on government approval of
around a score of applications from projects eager to export to non-FTA
countries, and the Freeport approval is being interpreted as a
sign of further openness.
For Asian buyers, the shift could mean an end to reliance on
inflexible long-term contracts that commit them to receive
practically all the cargoes they have agreed upon, with no
Freeport LNG doesn't commit importers to resell unneeded
volumes, which could be a game-changer in Asia, where
traditional contract terms have restrained the development of a
The viability of the Freeport deal "will give us more
bargaining power in talks with other producers," an Osaka Gas
spokesman told The Wall Street Journal.
Chubu Electric and Osaka Gas signed contracts last summer to
use Freeport's liquefaction facility, with each committed to
use of 2.2 million tpy of its LNG capacity to process
natural gas they buy in the North American market. Osaka Gas
also has a 10% stake in Freeport LNG Development, the
Freeport is the second LNG project the Obama administration has
approved for exports to non-FTA countries after the Sabine
Pass, La., which it approved in May 2011 and is slated to start
exporting in 2015.
The $10 billion Freeport LNG project is scheduled to start
commercial operations in 2017.
Japan Research Institute Senior Economist Mitsuo Fujiyama
said the Freeport approval augurs well for a spot market with
sufficient liquidity to sustain itself.
"For it to come to pass, participation from existing LNG
sellers such as Qatar, Russia and Australia will be necessary,"
Other Japanese LNG buyers have contracted with separate LNG
projects -- subject to US government
approval -- on terms similar to those agreed upon between
Freeport and its Japanese customers.
Japan is the largest Asian importer of LNG, but by no means
the only energy-hungry country in the region with an interest
in a spot LNG market.
Singapore received its first commercial delivery of LNG
early this month and plans to nearly double its throughput
capacity to 6 million tpy by the end of this year -- and
add an additional 3 million tpy in an unspecified time
Recently, the International Energy Agency pointed to
Singapore, Japan and South Korea as places in Asia well-suited
to become gas trading centers.
Dow Jones Newswires