Japan LNG demand has likely peaked: government official

SINGAPORE Tue Oct 23, 2012 1:39am EDT

SINGAPORE (Reuters) - The spike in Japanese demand for liquefied natural gas (LNG) triggered by a halt in nuclear power output in the wake of the Fukushima disaster may have peaked, as two reactors are back online and the summer demand season has passed, a senior government official said.

Japan, the world's top LNG consumer, boosted purchases further following the shutdown of atomic reactors after the March 2011 earthquake and tsunami crippled the Fukushima Daiichi nuclear plant, even as the jump in imports widened its trade deficit to record levels.

"Japan's demand for LNG is not very likely to expand further because now two reactors are back in operation," Toshihiko Fuji, a deputy director general at Japan's Ministry of Economy, Trade and Industry (METI), told Reuters in an interview.

"Probably now is the peak of Japan's LNG demand."

LNG currently accounts for 48 percent of Japan's energy requirements, up 16 percent from 2010 after the country scrambled for replacement energy sources as all 50 working commercial reactors were taken offline following Fukushima.

Most of the increase in demand for LNG was met by Qatar, the world's largest gas producer and Japan's second-largest supplier after Malaysia. It provided 17.2 percent of the 83 million tonnes imported in the year that ended in March 2012, according to Fuji.

Even though Japan did not make much headway in talks with Qatar for more flexible pricing, the government is working with India, another of the region's top gas consumers, to study pricing mechanisms and to work out a more cost-effective methodology, he added.

LNG is expensive in Asia as prices there are linked to the cost of oil. That means it costs about five times natural gas in the United States, where a shale oil and gas boom has driven down prices.

SHALE SURGE

In a bid to boost the availability of gas and other sources of energy, the Japanese government is in talks with the U.S. on importing shale gas and LNG, Fuji said.

The U.S. shale surge has sparked plans for exports of LNG, but fears that exports could feed energy prices have spurred a strong lobby to limit gas exports.

An added complication for Japan is the absence of a free trade agreement with the U.S., Fuji said.

"We've been in talks but we do not know (by when we can reach an agreement)."

Fuji also said that Japan's economy would be able to absorb any negative impact if the waiver on sanctions on Iranian crude exports to Japan is not renewed.

Japan's contract volumes for Iranian crude will only be slightly lower in 2013, raising the possibility that the U.S. waiver may not be renewed in March.

"Japan will continue to cooperate with the international community ... (but) any possible adverse economic impact (from a possible end to the waiver) would be absorbed and should be no problem to us," he said.

The U.S. extended Japan's exemption from its financial sanctions against Iran by six months in September.

For the first eight months of 2012, Japanese imports of Iranian crude dropped 42 percent from the same period a year ago to 191,731 bpd, according to Reuters calculations based on data from METI.

(Editing by Joseph Radford)

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