Japan eyes support for US LNG project expansions to shore up its energy needs

Japan has long placed a priority on securing energy for the islands nation, which has little of its own fossil fuel resources and no pipelines to crude oil or natural gas suppliers.

A pair of Japanese utilities helped pioneer the seaborne trade of liquefied natural gas when they signed a long-term contract in 1967 to take gas from the LNG plant that would be constructed in Nikiski, on the east side of Cook Inlet. It was the second LNG plant in the world, and the only one on the Pacific for years. It closed after nearly a half-century of production.

Now, with global LNG supplies tight, Russian gas of questionable political longevity and most of its nuclear power plants still closed after the 2011 Fukushima plant disaster, the Japanese government is looking to North America for help to meet its supply needs.

The government is looking to help finance expansion of existing U.S. Gulf Coast gas liquefaction plants as among the quickest options for long-term delivery of more of the fuel to the nation of 125 million people.

Japan is not moving away immediately from taking Russian LNG but is looking for alternatives.

“The U.S. has expansion plans at existing projects, which could boost production in a relatively short period of time, and Japanese companies are showing interest (in those projects),” Minister of Economy, Trade and Industry Koichi Hagiuda said at a press conference in Tokyo on May 10.

“Japan intends to contribute to starting up these U.S. projects with public financial support and proceed to cooperate with the U.S. in order to stabilize global LNG supply,” he added.

Hagiuda visited the U.S. and met with Energy Secretary Jennifer Granholm on May 4.

“We expressed our intention to cooperate in areas including upstream investments during the discussion,” he said of his meeting with Granholm.

With six LNG export terminals in operation on the Gulf and East coasts, the U.S. was Japan’s fourth largest LNG supplier in 2021, accounting for about 10% of Japan’s total LNG imports of just over 74 million tonnes that year. Russia, with its two export terminals, supplied 9% of Japan’s LNG imports and was the nation’s fifth-largest supplier, according to data from the Ministry of Finance.

State-owned Japan Oil, Gas and Metals National Corp., known as JOGMEC, is the likely candidate for investment in new U.S. LNG supply. The company provides equity capital for Japanese companies’ oil and gas exploration and production work, as well as loan guarantees to support financing.

JOGMEC’s support to bring more U.S. gas to Japan is expected to go toward existing projects where Japanese companies already are involved, which includes two on the Gulf Coast: The Sempra-led Cameron LNG terminal in Louisiana, and Freeport LNG in Texas.

Participants in Cameron, which started up in 2019, include trading houses Mitsui and Mitsubishi as well as marine shipper Nippon Yusen Kabushiki Kaisha (NYK Line). At 12 million tonnes annual production capacity, the partners are looking at a more than 50% expansion, targeting an investment decision next year.

On the Pacific, Mitsubishi is a partner in the Shell-led LNG project under construction in Kitimat, British Columbia. The terminal is expected to start shipments in 2025, with expansion possible.

Osaka Gas and LNG importer JERA, a 50-50 joint venture between Tokyo Electric Power and Chubu Electric Power, are among the participants in Freeport LNG, which is planning an expansion to add 5 million tonnes to its current annual production capacity of 15 million tonnes. The terminal shipped its first cargo in 2019.

While turning more toward U.S. projects, JOGMEC, along with Japanese trading house Mitsui, jointly hold a 10% stake in the Arctic LNG-2 project which is under construction in Russia’s far north, with a scheduled start-up date next year.

Western sanctions against Russian companies, however, could delay the equipment, expertise and financing needed for the project to reach its full build-out capacity of almost 20 million tonnes per year, which the lead partner, Russian gas producer Novatek, had expected to reach by 2026.

The Japan Bank for International Cooperation in 2021 signed on to participate in almost $1.8 billion of project financing for Arctic LNG-2, joining Chinese, Russian and other banks in the package.

“Considering the future demand for LNG in our nation and the world, we have to move ahead with this project,” Mitsui CEO Kenichi Hori said of the Russian project at a May 2 news conference. “Otherwise, the world’s energy balance will collapse, or there will be shortages.”

Japanese companies also hold stakes in Russia’s first LNG export plant, Sakhalin-2, on Sakhalin Island, about 800 air miles north of Tokyo. The plant, which sent its first cargo to Japan in 2009, includes Mitsui and Mitsubishi among its partners.

Russia’s second LNG project, Yamal, started operations in 2017. Although no Japanese company owns a stake in the project, the state-run Japan Bank for International Cooperation helped with financing the development, which is majority owned by Novatek, the same company leading the Arctic LNG-2 project.

And while the Japanese government is looking to help finance additional U.S. LNG capacity, Prime Minister Fumio Kishida told reporters on May 9 the country would maintain its stakes in oil and gas production at Sakhalin-1 and Sakhalin-2 in Russia.

He had told an online meeting of the leaders of the Group of Seven countries a day earlier that Japan will ban Russian crude oil imports “in principle” as part of a G-7 campaign. But it will take time, he said.

“We will take steps to phase out imports in a way that minimizes the adverse impact on people’s lives and business activities,” Kishida told reporters.

In addition to funding from the Minister of Economy, Trade and Industry, Japanese companies Itochu, Japan Petroleum Exploration Co., Marubeni and Inpex have stakes in Sakhalin-1, which was operated by ExxonMobil until it decided to exit from Russia.

The U.S. is expected this year to claim the title of world’s largest LNG exporter, a fast rise to the top after the first Gulf Coast exports in 2016, fueled by booming shale gas production and about $100 billion in investment in liquefaction capacity, storage tanks, docks and jetties, and pipelines to deliver feed gas.

A seventh U.S. export terminal came online earlier this year, with two more under construction on the Gulf Coast.

Larry Persily can be reached at [email protected].

05/17/2022 - 3:52pm