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Mitsubishi to supply LNG to emerging Asia

As market shifts, trading house sees chance to boost US imports to Japan

Japan's Mitsubishi Corp. and Bangladeshi conglomerate Summit Group will supply Bangladesh with 3.5 million tons of LNG a year from a floating terminal.

TOKYO -- Mitsubishi Corp. plans to supply liquefied natural gas to Bangladesh and other developing Asian countries, looking to meet the needs of these growing markets in a way that could help Japan in its trade friction with the U.S.

Japan has been considering importing more American LNG, but domestic demand is leveling off as the population shrinks. If Mitsubishi is able to sell more Southeast Asian and Middle Eastern LNG to other Asian countries, that will reduce the Japan-bound supply, leaving a shortfall that can be met with U.S. gas. Considering that Japan is the world's largest LNG importer, this would help reduce its trade surplus with the U.S. -- a source of tension under President Donald Trump.

The Japanese trading house aims to begin operating an LNG terminal in Bangladesh next year with local conglomerate Summit Group. It will park a floating storage and regasification unit -- which is faster and cheaper to build than a land terminal -- off the coast, supplying the country with 3.5 million tons of LNG annually.

Mitsubishi will hold a 25% stake in the terminal operation business and also plans to be involved in related areas, such as LNG procurement and power plant operation. The company's total spending on this venture is expected to run into the billions of dollars.

Though the LNG market is experiencing a glut now, demand is rising as natural gas replaces coal as the fuel for power generation. Natural gas emits less carbon dioxide than other fossil fuels. Global demand is expected to reach 530 million tons in 2030, up 80% from 2017. The trend is especially strong in fast-growing Asian economies, with total demand in Southeast and South Asia forecast to quadruple to 130 million tons over that period.

Bangladesh is a producer of natural gas, but it began importing LNG this year as its own output declines. The country is expected to bring in 17 million tons of the fuel in 2030 to meet the needs of a growing population. Though the supply will initially come from the Middle East, Mitsubishi plans to use its position as a terminal operator to market LNG from Southeast Asian countries where it has gas concessions, such as Malaysia and Brunei.

LNG is typically transported by sea from Southeast Asian and Middle Eastern gas fields to distant buyers, with Japan, South Korea and Taiwan among the main importers. Japanese trading houses have previously signed short-term contracts to procure LNG from developing Asian countries. But the Mitsubishi deal marks their first involvement in a project in the region that spans everything from procurement to power generation.

Mitsubishi envisions similar arrangements in other Asian markets such as Myanmar. The emergence of these countries as significant LNG buyers is leading to a new model of local production for local consumption.

China also has a growing need for LNG, with demand expected to more than double between 2017 and 2030 to 82 million tons. But the fuel may be included in tariffs on U.S. imports to be imposed as early as next month. This could lead to an oversupply of American LNG -- and a buying opportunity for Japanese companies.

The supply contracts that trading houses sign with gas producers often include "destination clauses" that limit buyers' ability to resell cargoes elsewhere, however. These terms would need to be revised to let trading companies redirect LNG originally meant for Japan to other Asian markets.

Mitsubishi's Bangladesh project is an example of a strategic shift among trading houses seeking to become less vulnerable to fluctuating resource prices.

These companies typically buy interests in oil and gas fields or mines and sell the resources extracted from them. They can reap enormous profits during boom periods but suffer heavy losses when prices decline. Mitsubishi and peer Mitsui & Co. both fell into the red in fiscal 2015 amid such a downturn.

Trading houses are adding fee-for-service businesses to their portfolios to stabilize their earnings as well as gain more points of contact with energy companies and buyers.

Mitsui and peer Marubeni are participating in a venture operating a floating production, storage and offloading, or FPSO, vessel off the Brazilian coast under a contract with Petrobras. Rather than sell the extracted oil and gas themselves, they are charging Petrobras usage fees for the platform, ensuring a steady flow of revenue not dependent on oil prices.

Sumitomo Corp. in April signed a memorandum of understanding with Malaysia's Yinson Holdings to pursue FPSO projects. The Japanese trading house has bought into a Yinson subsidiary operating an FPSO unit chartered by an Italian oil company off the coast of Ghana.

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