Japan Could End Up Importing 10 Mt of US LNG

Japan may end up importing 10 million tons of US LNG, reports Reuters citing Hiroki Sato, trading head of Chubu Electric Power.

“The most important thing for key Asian players is to increase liquidity in the global market,” Sato said in an interview given to Reuters at the LNG Suppliers to Asian Markets conference in Singapore.

According to Sato, South Korea’s annual imports of US LNG could reach 5 million tons.

Asian buyers pay much higher rates for LNG in spot markets due to linkages with oil. There has been an argument that de-linking gas prices from oil would secure more competitive prices.

Sato estimated that if Henry Hub trades around $4 per million British thermal units (mmBtu), a gas-linked landed price in Japan would be around $12 per mmBtu, including around $3 per mmBtu in transportation cost, reports Reuters.

“The current average price for Japan is $16, which would mean a 20-30% discount,” Sato said told the news agency, although adding that he did not think US gas prices would stay at such low levels.

“When the US starts exporting LNG, the domestic gas price will gradually increase,” he said.

To increase liquidity, Sato said joint procurement and removal of destination clauses were also necessary. Chubu Electric last year agreed to jointly buy LNG with Korea Gas Corp (KOGAS), and is working on a similar deal with India’s GAIL, adds Reuters.

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