Why Japan's Desperately Seeking U.S. LNG - Money Morning .com

[Hans Laetz, Newsgroup Editor]

By TONY DALTORIO, Contributing Writer, Money Morning March 25, 2013

The Fukushima nuclear disaster has had a dramatic impact on the
country's nuclear industry - and that's opened the door for major
developments for liquefied natural gas (LNG).

You see, two years after the Fukushima nuclear disaster in Japan, only
a few of its more than 50 nuclear power plants have been restarted.

Before the nuclear disaster, Japan had relied on nuclear energy for
30% of the country's electrical power and had planned to increase that
to 40%.

Now, the lack of nuclear power has left a big gap between demand for
energy and supply.

That's why Japan has sharply increased its imports of liquefied
natural gas. In fact, it's now the world's largest buyer of LNG.

In 2012, Japan imported a record 87.31 million tons of LNG, an
increase of 11.2% from 2011. It imported LNG from sources including
Qatar, Russia, Australia and Indonesia.

The LNG industry has reaped huge gains from Japan's surge in LNG use -
and the industry stands to gain much more in coming years.


The U.S. Shale Gas Revolution

The Japanese are well aware of the U.S. shale revolution and the
country's government already has announced roughly $11 billion in
credit guarantees to fund direct investments by Japanese companies in
U.S. shale gas.

And it came as no surprise when new Japanese Prime Minister Shinzo Abe
met U.S. President Barack Obama last month and called on the president
to permit exports of abundant U.S. LNG to Japan.

Several major Japanese firms, including Tokyo Electric Power Co.
(TEPCO), Chubu Electric Power Co. Inc. and Sumitomo all have
agreements to buy LNG from the U.S.

Sumitomo's head of energy, Bob Takai, told the Financial Times that
one of the top priorities of Japanese firms is to cut the LNG price.

Japan is also pushing to join negotiations for the Trans-Pacific
Partnership, designed to enhance trade and investment among the
partner countries while promoting innovation, economic growth and
development.

If Japan succeeds in becoming part of the partnership, it will make it
easier for U.S. companies to export LNG to Japan because the two
countries will then have a free-trade agreement, making exports to
Japan exempt from a U.S. Department of Energy review.

Natural Gas Companies That Stand to Benefit

If Japan and the U.S. sign a free-trade agreement, it should give a
major boost to U.S. companies exporting LNG. And any increase in gas
prices will flow through to the bottom line of natural gas producers.

But thus far, the U.S. has approved only one export terminal eligible
to export LNG to countries without a free-trade agreement - the Sabine
Pass project in Louisiana, which is controlled by Cheniere Energy Inc.
(NYSE: LNG). The U.S. Energy Department is reviewing 16 other
applications for terminals that could export LNG to countries without
a free-trade agreement.

Much of the LNG to be produced by the Sabine Pass terminal has already
been pre-sold to other LNG buyers such as South Korea, so it won' t
provide much to Japan.

But the Japanese are continuing to push for U.S. gas exports.

TEPCO reported in February that it signed a supply agreement with
another proposed Louisiana LNG export facility, Cameron LNG. This
project is backed by Sempra Energy (NYSE: SRE) along with two major
Japanese trading firms, Mitsui and Mitsubishi.

Look for Japanese companies to continue to hunt for cheap U.S. LNG and
for a lasting, mutually beneficial partnership between the U.S. and
Japan to continue to grow.