| TOKYO, March 26
TOKYO, March 26 U.S. shale gas may not be the
panacea being touted by Japan's politicians and companies to
sharply reduce the country's crippling energy bills.
Japan's government last month said it will provide loan
guarantees of 1 trillion yen ($10.47 billion) for investments in
shale gas, which the Nikkei business daily has said could cut
imported gas costs by as much as 40 percent.
But the advantage is eroded to as little as 10 percent once
shipping and other costs are accounted for, according to a
Reuters survey of estimates.
"The shale gas revolution is an illusion," said Toshinori
Ito, president of Ito Research and Advisory, an independent
energy research company based in Tokyo.
Japanese utilities such as Tokyo Electric Power Co,
Tokyo Gas Co and trading houses including Mitsui & Co
are signing contracts and building extra facilities to
import U.S. shale gas.
They are being encouraged by a government alarmed at a trade
deficit that surged to a record after the March 2011 Fukushima
nuclear crisis shut most of the country's atomic power stations,
pushing up utilities' annual fuel cost by 3 trillion yen.
The government is also considering offering insurance to
companies planning to import U.S. gas, the Nikkei reported in
The yen's 20 percent fall against the dollar this year has
added to the urgency as it increases the cost of imported fuel
for a country that already buys a third of the world's liquefied
Japan's energy imports account for 7 percent of gross
national product and the cost of natural gas has risen more than
77 percent in yen terms since January 2011, according to
Eurotechnology Japan KK.
But it's not clear U.S. shale can deliver the hoped for cost
U.S. producers are likely to charge a premium of as high as
30 percent over market quotes for piped gas, according to one
estimate. The only U.S. project that has so far secured a
license to export plans to charge a 15 percent premium.
U.S. domestic prices could also rise if costs of extraction
are pushed up by environmental concerns, while falling oil
prices make other sources of LNG that are priced against crude
cheaper by comparison.
"Cheaper yes for now," said Penn Bowers, an analyst at CLSA
Asia=-Pacific Markets. "But let's say oil prices fall back to
$70 given the fact that the US is also developing a lot of new
liquids and Iraq is increasing production - then you are left
wishing you had just stuck with the oil-linked price."
Australia and Russia are both keen to increase gas supplies
Firms are spending $190 billion to develop Australian LNG
exports, while a second Russian LNG terminal planned for
construction in Vladivostok is a short voyage away from Japan.
"The economics of Vladivostok LNG look attractive when the
project is supplied via a spur line from a future east
Siberia-China pipeline," said Gavin Thompson, Wood Mackenzie's
Head of Asia Pacific Gas Research.
LNG prices in Asia are about 70 percent higher than
levels in March 2011, increasing the lure for U.S. gas that was
last quoted at $3.95 per million British thermal units. Japan's
average price for LNG imports in January was $16.37 per mmBtu.
Japanese companies have signed up to receive 14.7 million
tonnes a year of U.S. LNG supplies, either in final agreements
or provisional accords, according to the Institute of Energy
Economics, Japan. That's a little over a sixth of Japan's
imports of 87 million tonnes last year.
While shale may not be as big a saver as some suggest, lower
prices for other LNG should ease the pressure on Japan's trade
balance and utilities' bottom line.
Nick Grealy, publisher of No Hot Air, a U.K.-based shale gas
consultancy, estimates the cost of shipping U.S. shale to Japan
at $8-$12 per mBtu.
"People won't be paying $3.50 in Japan. They won't be paying
oil index prices either and that alone can save billions off the
Japan trade balance."
The key benefit of U.S. shale may be the pressure it puts on
other suppliers to cut prices. Even at $9 per mmBtu, shale
imports will likely only reduce the cost of imports by about 10
percent, according to a study by Akira Yanagisawa, a senior
economist at the Institute of Energy Economics, Japan.
"Japan should maximise its benefits by using U.S. LNG
imports as leverage to gain advantageous terms for other LNG
imports," Yanagisawa said.