Japan’s Prime Minister Shinzo Abe (L) meets with US President Donald Trump during a bilateral … [+]
Japan has been the world’s largest liquefied natural gas (LNG) importer for a very long time. Since U.S. LNG exports from shale started in February 2016, Japan has been its third largest importer, after South Korea and Mexico (Figure). U.S. LNG from Alaska to Japan though stretches back to 1969. The U.S. is set to become the world’s largest LNG seller within four years.
On the surface, the upside for U.S. LNG to reach Japan seems limited. Japan is a saturated energy market with at best slow growing needs. Japan’s population is in “rapid decline.” Japan’s nuclear restart program and move back to more coal would expectedly lower the need for LNG. In fact, China is now slated to surpass Japan as the world’s largest LNG importer sooner than realized.
Yet, Japan will remain a vital market for U.S. LNG, as existing contracts expire over the next decade. As an island nation long driven by energy security concerns, Japanese buyers have been leading in contract innovation. Japan’s “JERA cuts destination clause in renegotiated LNG deals.” Flexible and wide ranging contracts are a primary area where the U.S. LNG industry seeks to stand out among a growing list of competitors, all primed to meet the world’s “dash to gas.” Importantly, this competition will include heavily equipped Russia, already accounting for nearly a quarter of the world’s traded gas.
Japan has been third in U.S. LNG imports, but the upside remains strong despite incremental energy … [+]
Slow growing Europe has also enjoyed dynamic and low cost U.S. LNG, surprisingly filling in nicely to help U.S. exporters weather the trade storm with China. The U.S. has not sent LNG to China in a year. Augmenting these unique contracts, LNG indexed to perpetually low U.S. Henry Hub gas prices will also maintain its critical competitive edge: the U.S. Department of Energy (DOE) has domestic prices staying below $3.70 per MMBtu for the next three decades at least.
Ultimately, if Japan goes the way of other nations and seeks to displace coal (as it is increasingly being pressured to do), or its nuclear woes drag on, LNG demand could double to ~22 Bcf/d. Although coal remains a very high (for a developed country) 33%, gas accounts for nearly 40% of power generation. U.S. LNG could use the lift from greater demand in Japan. Key trading partner Mexico, for instance, wants to turn to cheaper piped shale gas supply from south Texas (this process though has been slower than expected). This is an obvious choice for Mexico: latest DOE reporting has U.S. piped gas to Mexico at $2.55, with LNG at $5.80.
Further, sunken prices globally are causing Qatar to delay selecting partners for its planned 60% expansion in liquefaction capacity. This could open the door for even more U.S. LNG. Although such depressed prices from the coronavirus, overcapacity, and a warmer winter pretty much everywhere, the trend toward structurally lower global gas prices appears sustainable. This itself is helping to lock-in more infrastructure and thus demand. For its part, Japan is fueling the world’s shift toward more natural gas: “Japan to pump $10bn into LNG as move away from Mideast oil.”
