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Japan floats $10bn plan to build out Asian LNG market

World's No. 1 importer to support infrastructure like pipelines, power plants

Representatives from LNG producers and up-and-coming consumers like Myanmar met in Tokyo this week.

TOKYO -- Japan aims to help boost Asia's potential to use liquefied natural gas with $10 billion in aid, the government said Wednesday, in a bid to play a lead role in developing a market held back by lack of infrastructure and restrictive supply contracts.

Japan is the world's No. 1 importer of the fuel, which could help power economic growth in energy-hungry Asia. Hiroshige Seko, the Japanese trade and industry minister, announced the initiative at a Tokyo conference of LNG producers and consumers. 

Worldwide LNG demand is forecast to reach 460 billion cu. meters in 2022, up 30% from 2016, according to the International Energy Agency. Asia's appetite for the fuel is expected to grow roughly 40% to make up three-fourths of global imports by 2022. China's take is seen more than doubling, while emerging markets including Bangladesh and the Philippines will become new importers.

The need for pipelines and other infrastructure is seen growing accordingly, by some calculations requiring about $80 billion in spending by 2030. Building docking facilities and other equipment will take large-scale investment, but budgets are limited, Myanmar Energy Minister Win Khaing said at Wednesday's LNG conference.

Building pipelines and clout

Japan sees a ripe opportunity to export infrastructure -- a key part of Prime Minister Shinzo Abe's economic growth strategy. Besides creating business for domestic engineering groups, it sees such efforts helping cultivate the market and strengthen Japan's hand in future procurement negotiations.

Japan offered few details about the public-private aid package, leaving companies and state-backed financial institutions to work out aid arrangements on a case-by-case basis.

Tokyo also sees a chance to warm relations with Washington by acting as a go-between for supplying Asia with shale gas from the U.S., where revolutionary advances in production like fracking are turning America from a gas importer to an exporter. For the Trump administration, which is fixated on cutting U.S. trade deficits, shale gas offers a way to rebalance.

Many on the demand side blame contractual terms called destination clauses, under which suppliers can restrict buyers from reselling the fuel, for holding back the LNG trade. Japan and the European Union have called for such clauses to be abolished, citing anti-monopoly concerns.

Commercial opportunities

Japan on Wednesday signed a memorandum on cooperation in LNG with India, the world's fourth-largest importer. It also aims to partner with other LNG consumers, notably the Europeans, to spearhead liberalization of the market.

Japanese companies are already positioning themselves to capitalize on Asian growth in LNG trading. Tokyo Gas has gotten into the distribution business in Indonesia, and also aims to support the construction of terminals and other LNG infrastructure. "We want to use Japanese funding and technology to advance Southeast Asia's shift toward LNG," said President Michiaki Hirose.

On Monday, Tokyo Gas and the government-backed Development Bank of Japan invested roughly 4 billion yen ($35 million) in Indonesian gas distributor Panji Raya Alamindo to cultivate urban gas demand there. The Japanese utility established a Singapore office in 2015 to look for investment opportunities in the region. In April, it set up an LNG trading desk in its resource procurement division.

JERA, a joint venture of Tokyo Electric Power Co. Holdings and Chubu Electric Power, also intends to get into LNG trading. Tepco and other Japanese regional power companies have idle nuclear plants they aim to restart, and each reactor brought back online would free up about 1 million tons per year of surplus LNG fuel.

JERA aims to launch LNG trading operations around 2019, when production of resalable U.S. LNG will rise, President Yuji Kakimi told The Nikkei.

Kansai Electric Power also opened a Singapore hub this spring and is gathering information in order to start LNG trading operations.


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