Shale Revolution That Shocked US Markets Heads to Japan

Shale Revolution That Shocked US Markets Heads to Japan
The US shale revolution that turned North American energy markets upside down is finally headed to the world's largest consumer of LNG: Japan.

(Bloomberg) -- The U.S. shale revolution that turned North American energy markets upside down is finally 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.

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 that most of the LNG coming to Japan is linked to. 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 e-mail. “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 70,000 metric tons of LNG produced at the Sabine Pass terminal was loaded onto the Oak Spirit vessel on Dec. 7, according to Sawaki. Jera has a short-term deal with Cheniere to receive as much as 700,000 tons of LNG from July 2016 to January 2018.

Greater Flexibility

Japanese companies have contracted about 14 million tons of LNG 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 LNG trade, will be oversupplied by about 20 billion cubic meters in 2017 to 2018, the International Energy Agency said in a report earlier this year.

Japanese is probing whether destination restrictions in most of its liquefied natural gas contracts violate fair trade laws. LNG 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.

With assistance from Dan Murtaugh. To contact the reporters on this story: Stephen Stapczynski in Tokyo at sstapczynsk1@bloomberg.net ;Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net Aaron Clark

Copyright 2017 Bloomberg News.

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