The U.S. shale revolution that turned North American energy markets upside down is headed to the world's largest consumer of liquefied natural gas: Japan.
Jera Co., a joint venture between Tokyo Electric Power Co. Holdings Inc. and Chubu Electric Power Co., will get its first LNG cargo produced from the formations in early January, spokesman Atsuo Sawaki said. It would be the first supply to reach the Asian nation from Cheniere Energy Inc.'s Sabine Pass terminal in Louisiana.
The shipment brings to fruition a contract signed more than two years ago. While U.S. exports are still relatively small, they are having an impact because the contracts are tied to U.S. natural gas prices instead of crude oil, to which most of the LNG coming to Japan is linked. They also allow for switching of cargo destinations -- a key concern for importers such as Japan that are pressuring producers for more flexibility.
"The first U.S. cargo marks a turning point," Kerry Anne Shanks, an analyst at Wood Mackenzie Ltd., said by email. "Japan's LNG imports are almost exclusively priced on an oil-index price. U.S. LNG provides much needed index diversification of Japan's LNG price."
About 77,000 tons of liquefied natural gas was loaded onto the Oak Spirit vessel Wednesday at the Sabine Pass terminal, according to Sawaki. Jera has a short-term deal with Cheniere to receive as much as 700,000 tons of liquefied natural gas from July 2016 to January 2018.
Japanese companies are buying about 14 million tons of liquefied natural gas on long-term contracts that begin between 2017 and 2022 from U.S. projects in the lower 48 states, according to a November presentation by the Japan Oil, Gas and Metals National Corp.
Japan, China and South Korea, which account for more than half of the global liquefied natural gas trade, will be oversupplied by about 20 billion cubic yards from 2017 to 2018, the International Energy Agency said in a report earlier this year.
Japanese trade officials are studying whether destination restrictions in most of the country's liquefied natural gas contracts violate fair trade laws. Liquefied natural gas sellers will benefit by allowing buyers more flexibility to resell cargoes because it will make the market more efficient and stimulate demand, Jera Chairman Hendrik Gordenker said in a Dec. 1 interview.
Cheniere's Sabine Pass terminal shipped the first U.S. LNG cargo produced from shale in February to Brazil.
Stockpiles of natural gas in the United States totaled 3.953 trillion cubic feet on Dec. 2, 1.3 percent above year-earlier levels and 6.9 percent higher than the five-year average, U.S. Energy Information Administration data Thursday showed.
Information for this article was contributed by Dan Murtaugh and Naureen S. Malik of Bloomberg News.
Business on 12/10/2016