Idemitsu Kosan Co., Japan’s third-biggest oil refiner, is seeking a stake in a natural gas field in Canada to secure supplies for a proposed export plant in the country that will ship the fuel back home.
The company wants to hedge against gas price volatility by holding the upstream interest as it builds its first LNG plant with partner AltaGas Ltd. (ALA), incoming President Takashi Tsukioka, 65, said without giving a budget or identifying a target. The terminal will be located on the west coast of Canada and ship as much as 2 million metric tons annually as early as 2017, according to Tokyo-based Idemitsu.
Japan’s energy companies are rushing to meet fuel demand following the Fukushima nuclear disaster two years ago. Idemitsu and AltaGas are among companies planning to build LNG plants on the west coast of Canada to export to Asian countries as a boom in output from shale formations has lowered North American gas prices. Freight costs for west coast projects will be cheaper than those shipping LNG through the Panama Canal, Tsukioka said.
“Various Asian companies including ones in Japan have shown interest in our project to diversify supply sources,” Tsukioka said in an interview in Tokyo. “There’s no doubt logistics costs for the project would be cheap.”
Shipping LNG from Kitimat and Prince Rupert, both on Canada’s west coast, to Japan takes about 10 days, Keisuke Tsujimoto, chief of state-affiliated Japan Oil, Gas & Metals National Corp.’s Vancouver office, wrote in a report last month. Shipments from Sydney take about 15 days and from the Gulf of Mexico 20 days, he said, adding longer travel times increase transport costs.
Japanese power companies imported a record 58.3 million tons of LNG in the year ended March 31 as all but two of the nation’s 50 reactors remained shut. Nuclear shutdowns and a weaker yen will force the nation’s nine power companies to pay 3.8 trillion yen ($38.6 billion) more in combined fuel costs this fiscal year, a government advisory board estimated in April.
The nation’s average LNG import cost in 2020 may decline 15 percent from current prices should Japan secure about 40 percent of its annual need through contracts linked to U.S. gas prices, the Development Bank of Japan said in a February report. Japan paid an average $16.44 per million British thermal unit for LNG in March. That was more than four times the price of comparable U.S. futures at Henry Hub.
Idemitsu, which is also leading a group of companies from Kuwait, Vietnam and Japan to build a $9 billion refinery in Vietnam, has made a final investment decision for the 200,000 barrels-a-day plant, Idemitsu said in a statement earlier this month. The group signed agreements to receive direct loans of $2.3 billion from the Japan Bank for International Cooperation and the Export-Import Bank of Korea and $2.7 billion from commercial banks, Idemitsu said.
The company is “considering every financing option” for its new projects, Tsukioka said, when asked about the possibility of issuing new shares. Idemitsu, listed on the Tokyo Stock Exchange since 2006, sold bonds for the first time last year.