16
LNG
INDUSTRY
SEPTEMBER
2014
LNG to buyers in Asia and also Europe. Reselling
opportunities would allow participating companies to buy
larger volumes and be able to get discounts on cargoes. This
would help drive down LNG import costs.
Establishing partnerships with other buyers
LNG importing companies from Japan have started forming
partnerships with other LNG buyers to increase their
negotiating power.
Tokyo Electric Power Co. has a proposal to tie up with
other Japanese and foreign companies to form a buyer’s
group to jointly procure up to 40 million tpy.
Government level partnerships and cooperation between
buyer countries are also expected to grow.
Investment in LNG projects overseas
Japanese LNG importers are now actively investing in
upstream gas and LNG projects worldwide to improve their
chances of securing a sustainable supply of cheaper gas.
Projects in the US and Canada are at the top of the list, as
apart from a stable investment climate, these two countries
would also be in a position to sell the cheapest LNG to Japan,
considering the depressed natural gas prices in this region.
The US could potentially supply Japan with up to
10 million tpy of LNG. LNG imports from the US are likely to
reduce the average LNG price that Japan pays to
US$ 12/million Btu by 2020.
Australia is another favoured destination for Japanese
investment in LNG projects overseas. Japanese companies
have invested in Australian projects with stakes varying from
0.5% up to 9%.
Japanese companies are also investing in LNG projects in
Southeast Asia and Africa.
Decrease purchase from spot markets
Since nuclear power is to be gradually introduced into the grid
starting in Q4 2014, extra gas to substitute for nuclear power
will be needed for a longer duration. LNG importers are likely
to reduce dependence on spot markets and try to secure
long-term contracts to obtain better rates.
Going by the demand for the base case scenario for
2017 - 2019, Japanese LNG buyers may be over-contracted,
giving scope for oversupply.
This year, Japan has started releasing spot LNG prices in a
move to improve the transparency of LNG purchases.
Futures market to delink oil and gas prices
Japan intends to establish a futures market for LNG that
would effectively delink the gas prices from oil prices. This
would shield buyers from price upswings. A futures market
would also make LNG trading global. This would reduce the
price gap between various regions.
Conclusion
The projected strong demand for LNG, increase in LNG trade,
and investments in foreign projects will create tremendous
growth opportunities for Japanese engineering, equipment
and service companies.
To meet the anticipating increase in demand, 10 more
LNG receiving stations are expected to be commissioned,
increasing Japan’s LNG receiving terminal storage capacity to
approximately 20 million m
3
by 2020 from the current level of
around 17 million m
3
.
The scale of industry growth anticipated by 2020 can be
gauged from the investment plans chalked out by the
leading Japanese LNG fleet owners Mitsui OSK Lines (MOL),
Nippon Yusen Kabushiki Kaisha (NYK Line) and Kawasaki
Kisen Kaisha Ltd (“K” Line). These companies have embarked
on a major fleet expansion drive. MOL is investing
US$ 5 billion to almost double its LNG carrier fleet strength
to 120 by 2020 from the current 66. NYK Line is planning to
raise its LNG tanker fleet to 100 by 2019 from 70, and
“K” Line has plans to add around 20 new LNG carriers to its
fleet by 2020.
Development of Japan’s renewable energy resources has
been stalled by the large monopolistic utilities. If this situation
changes, driven by the 2013 electricity reformation law, the
country could reduce its dependence on gas to a significant
extent. However, with large utilities still preferring thermal
gas plants over renewable sources, the demand for gas from
the electric sector is expected to remain high.
Globally, the LNG market is expected to tighten and be
supply constrained until the end of the decade. In this context,
Japan has done extremely well to secure its LNG supply.
Figure 3.
Japan’s average LNG prices (data collated by Frost &
Sullivan from various industry sources).
Figure 4.
Contracted and spot LNG purchases: nuclear re-entry
in Q4 2014 scenario (Frost & Sullivan forecast based on estimates
from various industry sources).
