--Tepco nearing completion of a deal with Cameron LNG to import
800,000 tons of liquefied natural gas a year from the U.S. starting
in 2017
--Energy-strapped Japanese utilities eager to tap into U.S.
shale gas
--Tepco said the natural gas it buys from Cameron would be
linked to U.S. natural-gas price benchmark Henry Hub, recently at
$3.42/million btu
Tokyo Electric Power Co. (9501.TO) is nearing completion of a
deal to import 800,000 tons of liquefied natural gas a year from
the U.S. starting in 2017, a new sign of the effect North American
shale is already having in global energy markets.
The proposed 20-year deal between Tokyo Electric, also known as
Tepco, and potential LNG supplier Cameron LNG, follows contracts
Cheniere Energy Inc. (LNG) has inked with Korea Gas Corp.
(036460.SE) and others. Utilities in energy-strapped Japan have
become eager to tap into U.S. shale gas, which hydraulic fracturing
has made abundant and cheap. The interest is heightened by a steep
reduction in their use of nuclear power in the wake of the
Fukushima catastrophe.
Tepco said in a press release the natural gas it buys from
Cameron would be linked to U.S. natural gas price benchmark Henry
Hub, which settled Thursday at $3.285 a million British thermal
units, down 13.3 cents. Buying U.S. gas would allow Tepco to
diversify its sources of LNG and to tie the price of part of the
natural gas it consumes to U.S. prices, which are seen as more
stable than the oil price benchmark most LNG trades at. Currently,
Tepco buys most of its LNG from Brunei, Malaysia and other
countries.
The deal could have wider repercussions in the global LNG market
by helping break the link between oil and LNG and eventually
helping to bring world LNG prices down, said Macquarie Research
energy analyst Vikas Dwivedi.
"The fact that you're moving away from that oil-linked formula,
over time you will move away from," an oil-linked price, Mr.
Dwivedi said.
Currently no infrastructure to liquefy and export natural gas
exists in the lower 48 U.S. states, but Cameron and many other
companies are building or planning natural gas export terminals.
Cameron, an affiliate of Sempra Energy (SRE), operates a $900
million LNG import terminal near the U.S. Gulf Coast in Hackberry,
La. Cameron expects to finish converting the terminal to export up
to 12 million tons a year of gas by the end of 2017.
But potential exporters must first clear regulatory hurdles,
including obtaining government permission to export the gas to
countries not in a free-trade agreement with the U.S., a group that
includes Japan. So far only Cheniere has received government
approval to actually ship the gas to much of the world, and its
terminal to export LNG out of Louisiana is scheduled to be ready in
2015.
Tepco said it would rely on Japanese trading firms Mitsui &
Co. Ltd. (MITSY, 8031.TO) and Mitsubishi Co. Ltd. (MSBHY, 8058.TO)
to each transport 400,000 tons of contracted gas every year. The
natural gas would come from various shale plays, Tepco said.
Tepco and other Japanese power companies are dependent on
natural gas imports to generate electricity. The Japanese
government shut down most nuclear power generators after a March
2011 tsunami caused Tepco's Fukushima Daiichi nuclear plant to
undergo a reactor meltdown.
A spokeswoman for Sempra said that the company is pleased with
Tepco's decision, which "demonstrates the strategic importance of
U.S. natural gas to the energy security and economic growth of
Japan."
Tepco imported about 24 million tons of LNG in 2011, nearly a
quarter of the total brought into Japan, the company said. The
company was seeking to buy another 1.2 million tons a year of
natural gas but didn't say where it was looking.
Write to Ben Lefebvre at ben.lefebvre@dowjones.com
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