Japan boosts estimated need for LNG
This means there could be more room for Alaska gas in Asia than is currently thought possible. North Slope producers have looked at the Asian market but have concluded that slow economic growth in the region, coupled with ample supply from other countries, make an Alaska project to export liquefied natural gas, or LNG, to Asia uneconomic.
The North Slope producer companies are now working on a plan to ship Alaska gas to the contiguous United States via a new overland pipeline.
Shigeru Muraki, manager of supply for the Tokyo Gas Co. Ltd., told state legislators in Juneau on Feb. 15 that use of gas in Japan for electrical generation is increasing faster than expected. Muraki spoke in Juneau to a combined meeting of the Senate Resource Committee and the Oil and Gas Committee of the State House.
Consumers in Japan are concerned about the environmental effects of traditional fuels like oil and coal and the safety of nuclear power plants, Muraki said. Natural gas is seen as a cleaner fuel with fewer greenhouse gas emissions.
Muraki said his company foresees demand for LNG reaching as much as 135 million metric tons per year in 2010, or 109 million tons annually in a "low growth" case. The region now consumes about 80 million metric tons of LNG yearly.
Extensions of current contracts can continue to supply about 80 million tons yearly to the East Asia region, but Tokyo Gas expects to see new demand for 28 million to 53 million tons yearly on top of existing supply, he said.
Muraki’s message to Alaska that Asia is interested in North Slope gas was welcomed by Yukon Pacific Corp., a company that has been working to develop an LNG export project in Alaska.
"Their new demand projections are about 50 percent higher than what people expected 10 years ago," said Jeff Lowenfels, president of Yukon Pacific. "We always felt the demand for gas would be there, but others were more cautious."
Muraki said Tokyo Gas has contracts sufficient to meet its growth to 2005 and will be looking for new supplies of LNG after that. But Korea and possibly Taiwan will be buying additional LNG before 2005, according to the Tokyo Gas analysis. Muraki said China will soon be entering the LNG market as well, looking for supply.
Alaska and Sakhalin, in the Russian Far East, are seen by Tokyo Gas as possible sources of major new supplies of LNG, Muraki said. In Sakhalin, two consortiums led by major Western oil companies are planning projects to export gas to Japan and Korea.
A group led by Shell Oil is planning an LNG project, expected to be in production in 2006. A second consortium led by Exxon Mobil Corp. is planning a gas pipeline to northern Japan and expects to be in production in 2008.
Muraki said the LNG pricing picture is complicated by the growth of gas in the market. The price of LNG in the Pacific is now linked with crude oil, in terms of units of energy. But as more and more gas is used for electrical generation, its cost is weighed by utilities against coal, nuclear, hydro and other energy sources.
Also, if gas is brought into Japan by pipeline from Sakhalin, LNG -- which is transported by ship -- must be competitive with gas moved by pipeline.
The effects of this is that LNG may become "decoupled" from crude oil in price, which could lead to a lowering of the price utilities are willing to pay because it will be competing with pipeline gas, coal and other energy sources. Today it is mainly an alternative to fuel oil, Muraki said.
Muraki also told legislators his company hopes to secure lower-cost LNG in the future. In new purchase agreements expected to be concluded soon, prices for LNG are expected to be about 10 percent lower than at present, he said.
Yukon Pacific Corp., a subsidiary of CSX, the major U.S. transportation company, isn’t the only industry group looking at an LNG project. A consortium of Phillips Petroleum Co., BP, Foothills Pipe Lines and Marubeni, a Japanese trading company, is also studying the idea. This consortium, led by Phillips, has now focused its work on a possible spur pipeline to a southern Alaska LNG plant from a pipeline to the Lower 48 that would parallel the Alaska Highway.
Muraki said that Australia, Indonesia and Malaysia, which now supply most of the LNG to Japan and Korea, will continue to be important suppliers to both countries.
But increased regional demand for gas in Indonesia, Malaysia and Thailand to fuel domestic industrialization will limit future growth in LNG exports, he said.
While there are very large supplies of gas in Qatar and Abu Dhabi in the Persian Gulf, LNG from suppliers there is now being sold in East Asia. In the future it may be more profitable to supply new LNG customers in India and eastern Mediterranean countries because of the long distance LNG tankers must travel to reach Japan and Korea, Muraki said.
Tokyo Gas would like to obtain its future supplies of energy from diversified sources, Muraki said. Consumers in Japan and Korea are now too dependent on the Middle East and Southeast Asia, he concluded.