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Japan Plans LNG Consumer Group to Reduce Import Costs

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Sept. 10 (Bloomberg) -- Japan, the world’s biggest buyer of liquefied natural gas, plans to form an international consumer group to study ways of reducing import costs.

The government-affiliated Institute of Energy Economics of Japan is proposing joint research with organizations in Asia and Europe on issues in LNG markets, Economy, Trade and Industry Minister Toshimitsu Motegi said at a conference in Tokyo today.

To ensure competitive and stable supplies, the ministry will also examine “new types of joint procurement involving multiple LNG-importing entities” from this autumn, he told the gathering of producing and consuming nations.

Japan imported more LNG and other fossil fuels for power generation after the Fukushima disaster in March 2011 forced utilities to shut nuclear reactors for safety checks. With its last operating atomic facility set to be closed this month, the country is seeking ways to lower costs, including by boosting shipments of LNG from North America where production has surged amid a shale-gas boom.

Japan’s nine power utilities will face 3.8 trillion yen ($38 billion) more in combined fuel costs this fiscal year compared with fiscal 2010 because of the nuclear shutdowns, the government estimated in April. LNG will account for 1.6 trillion yen, or 42 percent, of the increase.

The country paid an average price of $15.11 per million British thermal units for LNG in June, according to data from LNG Japan Corp. That compares with an average of about $3.80 for U.S. natural gas futures traded in New York.

U.S. Supply

The U.S. has approved exports of LNG from three projects to countries with which it doesn’t have free-trade agreements, including Japan. The Asian nation expects the U.S. government to grant approvals to two more, allowing shipments of about 15 million metric tons a year after 2017, according to Motegi. That would cover about 20 percent of Japan’s requirement.

“With the shale-gas revolution in the U.S., the doors have opened for a competitive supply of LNG to the market,” the minister said. “We welcome LNG exports from the U.S. as an extremely effective method to ensure both a stable supply of energy and a reduction in import costs in the LNG markets in Asia and Europe.”

Motegi and Indian Petroleum Minister Veerappa Moily signed an agreement yesterday to collaborate on ways to reduce LNG import costs. The two governments supported the start of the consumer group, they said in a joint statement before the industry event in Tokyo.

To contact the reporters on this story: Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net; Yuji Okada in Tokyo at yokada6@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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