Why Japan's Desperately Seeking U.S. LNG

The Fukushima nuclear disaster has had a dramatic impact on the country's nuclear industry - and that's opened the door for major developments for liquefied natural gas (LNG).

You see, two years after the Fukushima nuclear disaster in Japan, only a few of its more than 50 nuclear power plants have been restarted.

Before the nuclear disaster, Japan had relied on nuclear energy for 30% of the country's electrical power and had planned to increase that to 40%.

Now, the lack of nuclear power has left a big gap between demand for energy and supply.

That's why Japan has sharply increased its imports of liquefied natural gas. In fact, it's now the world's largest buyer of LNG.

In 2012, Japan imported a record 87.31 million tons of LNG, an increase of 11.2% from 2011. It imported LNG from sources including Qatar, Russia, Australia and Indonesia.

The LNG industry has reaped huge gains from Japan's surge in LNG use - and the industry stands to gain much more in coming years.

The U.S. Shale Gas Revolution

The Japanese are well aware of the U.S. shale revolution and the country's government already has announced roughly $11 billion in credit guarantees to fund direct investments by Japanese companies in U.S. shale gas.

And it came as no surprise when new Japanese Prime Minister Shinzo Abe met U.S. President Barack Obama last month and called on the president to permit exports of abundant U.S. LNG to Japan.

Several major Japanese firms, including Tokyo Electric Power Co. (TEPCO), Chubu Electric Power Co. Inc. and Sumitomo all have agreements to buy LNG from the U.S.

Sumitomo's head of energy, Bob Takai, told the Financial Times that one of the top priorities of Japanese firms is to cut the LNG price.

Japan is also pushing to join negotiations for the Trans-Pacific Partnership, designed to enhance trade and investment among the partner countries while promoting innovation, economic growth and development.

If Japan succeeds in becoming part of the partnership, it will make it easier for U.S. companies to export LNG to Japan because the two countries will then have a free-trade agreement, making exports to Japan exempt from a U.S. Department of Energy review.

Natural Gas Companies That Stand to Benefit

If Japan and the U.S. sign a free-trade agreement, it should give a major boost to U.S. companies exporting LNG. And any increase in gas prices will flow through to the bottom line of natural gas producers.

But thus far, the U.S. has approved only one export terminal eligible to export LNG to countries without a free-trade agreement - the Sabine Pass project in Louisiana, which is controlled by Cheniere Energy Inc. (NYSE: LNG). The U.S. Energy Department is reviewing 16 other applications for terminals that could export LNG to countries without a free-trade agreement.

Much of the LNG to be produced by the Sabine Pass terminal has already been pre-sold to other LNG buyers such as South Korea, so it won' t provide much to Japan.

But the Japanese are continuing to push for U.S. gas exports.

TEPCO reported in February that it signed a supply agreement with another proposed Louisiana LNG export facility, Cameron LNG. This project is backed by Sempra Energy (NYSE: SRE) along with two major Japanese trading firms, Mitsui and Mitsubishi.

Look for Japanese companies to continue to hunt for cheap U.S. LNG and for a lasting, mutually beneficial partnership between the U.S. and Japan to continue to grow.

Want to know more about the natural gas companies set to profit from LNG? Check them out here: Five U.S. Natural Gas Companies Set to Soar from an Export Boom

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