April 27, 2012 / 8:05 AM / 8 years ago

UPDATE 1-Sumitomo, Tokyo Gas in talks for U.S. LNG imports

* Firms in talks to buy up to 2.3 mln TPY of Cove Point LNG from 2017

* Sumitomo to source natural gas from Marcellus project

By Osamu Tsukimori

TOKYO, April 27 (Reuters) - Japanese trading house Sumitomo Corp and Tokyo Gas Co Ltd said on Friday that they will hold talks with Dominion Resources Inc to import up to 2.3 million tonnes of liquefied natural gas (LNG) per year for 20 years from 2017.

Tokyo has been negotiating with Washington since last year to allow more shale gas projects to export LNG to Japan, the world’s top importer, which hopes to receive cost-efficient LNG via the Panama Canal as early as in 2015.

Still reeling from the Fukushima nuclear crisis that has idled all but one of its 50 reactors amid public safety concerns, Japan has rapidly increased LNG purchases, with imports growing 17.9 percent to a record 83.2 million tonnes in the fiscal year ended March 31.

Sumitomo said it had signed a preliminary agreement with Dominion Resources that would lead to the right to buy LNG produced at a 5-million-tonne-per-year gas liquefaction facility to be built by Dominion at the Cove Point project in Maryland, and that Tokyo Gas would join Sumitomo when a formal contract was signed.

The Japanese companies added that they were considering sourcing feedstock from the Marcellus shale gas project in which Sumitomo is participating.

If the project receives formal U.S government approval in 2017, its shipments to Japan will likely be priced at less than $10/mmBtu, said Kunio Nohata, senior general manager of gas resources department at Tokyo Gas, well below current Asian prices at around $17/mmBtu.

The LNG output could be exported to anywhere in the world, he added.

Record North American natural gas production is prompting companies to consider export plans to tap thirsty markets in Europe and Asia.

Three projects in Louisiana - the Sabine Pass, Lake Charles and Cameron LNG projects - and the Cove Point project have applied for construction and export licenses, seeking long-term deals predominantly with buyers in Asia.

The wash of domestic shale gas hitting U.S. markets has sent domestic gas prices plummeting, but concern that the fledgling movement to export LNG - natural gas cooled to a liquid for transport overseas - could drive up U.S. prices has drawn opposition from consumer groups.

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