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Economy

US shale-based LNG gushes into Asia

Japan follows South Korea, China and India in signing long-term contracts

A ship carrying U.S. LNG arrived at a port in Yokohama, Japan on Monday. (Photo by Ryosuke Hanafusa)

TOKYO -- Liquefied natural gas originating from the U.S. is flowing into Asia at an accelerating pace, with Japan becoming the most recent country to buy the fuel under a long-term contract.

Japan will begin sourcing a sizable portion of its LNG from the U.S. to improve its energy security. Tokyo also seeks to alleviate pressure from U.S. President Donald Trump's administration to address their bilateral trade imbalance. Other Asian countries are tapping this relatively new source as well, amid growing demand for energy.

A tanker carrying 70,000 tons of LNG from the Cove Point terminal in the U.S. state of Maryland docked Monday at the Negishi terminal in Yokohama, operated by Tokyo Gas. The company agreed to buy about 1.4 million tons of LNG annually from the Cove Point project for 20 years.

The U.S. became a net exporter of natural gas last year, taking advantage of huge reserves of shale gas from underground rock formations. Japan accepted its first-ever cargo of shale-based LNG from the continental U.S. in January 2017, while Monday's delivery marked the first to come as part of a long-term contract.

Energy-hungry Asian countries are eager buyers. South Korea started importing American LNG under a long-term contract last year. India did the same in March, with state-run Gail (India) signing a 20-year deal with Texas-based Cheniere Energy. Cheniere also announced in February an agreement to sell 1.2 million tons yearly to China National Petroleum, the first long-term LNG import deal between American and Chinese players. 

Demand likely will continue growing in China and India, where stronger environmental regulations are spurring a shift to natural gas from coal for power generation. China overtook South Korea last year to become the world's second-largest LNG importer -- behind only Japan -- and is expected to top the list in 2030.

In a joint statement issued by the U.S. and China on Saturday regarding the latest trade consultations, China agreed to "meaningful increases" in imports of U.S. energy. U.S. Commerce Secretary Wilbur Ross will travel to China next week to further discuss the details of the trade agreement. 

LNG plants are sprouting across the U.S., as Japanese buyers plan to procure 10 million tons annually from American sources, data from the industry ministry shows -- enough to meet more than 10% of Japan's demand.

Japan relies on imports to meet nearly all of its natural gas needs, using the fuel chiefly for electricity generation and city gas. The country brought in 83.6 million tons of LNG last year. Australia accounted for 30% of the total, followed by Malaysia and Qatar.

But American-produced LNG typically is tied to the Henry Hub price benchmark, while most sources elsewhere are linked to crude oil. This leaves U.S. prices less exposed to the volatile crude market, an important advantage.

Japan now pays around $9 per 1 million British thermal units for imported LNG, compared with a Henry Hub price of less than $3. The prices become roughly equal after shipping and liquefaction costs are considered, the industry ministry says.

"Diversifying our [LNG] sources will help increase our energy security," a senior ministry official said.

The U.S. promotes exports of shale gas as a way to reduce trade deficits. Japan sees energy imports as an alternative to meeting demands from the Trump administration to buy more automotive and agricultural goods -- areas where ceding any more ground would be difficult for Tokyo.

"We're considering policy measures" to boost LNG imports further, a Japanese government official said. Japan also plans to work with the U.S. to promote shale gas exports to other Asian markets. Companies are conducting feasibility studies for facilities such as receiving terminals and power plants around Asia.

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