Monday, March 15, 2010 2:54 PM
(Source: Datamonitor)For the past three years, Australia has hosted a thrilling race to develop its coal seam gas resources. BG Group is the current market leader, with other IOC/NOC joint ventures close behind; Shell made the most recent move, offering to acquire the remaining shares of its partner Arrow Energy. Yet, with competition continuing apace, Japan's strategic purchases have been largely overlooked.
Japan is the largest user of liquefied natural gas (LNG) in the world. In 2009, Tokyo Electric Power Co. consumed 12% more LNG than the previous year; with power consumption only growing 7% in the same period, it is clear that LNG is gaining increasing importance. Australia's coal seam gas (CSG) is particularly known for its low calorific content and converts to a lean form of LNG which few countries are able to use. This being the case, suppliers have admitted they will need to offer major discounts if they hope to sell their large reserves.
In the short term, suppliers anticipated higher prices, encouraged by growing demand from South Korea and the US' long anticipated need to import large volumes of LNG. In this market, Japan would not have been able to compete for CSG-derived LNG; in order to meet Japan's quality control demands, lower grade gas needs to be treated at such high cost that it cannot afford to buy this gas without discounting. However, the market changed as soon as the US found cost effective ways to exploit its abundant shale gas reserves, effectively removing it from the race for the Australian resources. This opened the door for Japan, whose companies did not hesitate. In late 2009, Toyota Tsusho Corporation secured 1.5 million metric tonnes per annum of CSG-derived LNG over 12 years from LNG Ltd.
Although Japan is trying hard to secure its LNG future, China may yet spoil the feast; pressured over its climate change stance, it has been keen to increase its access to natural gas. Following its delayed support for the Copenhagen Accord, China has announced plans to build a series of LNG terminals. While these will take time to complete, the country is still likely to emerge as Japan's next competitor. Indeed, PetroChina has already positioned itself in the market by joining Shell in the acquisition of Arrow Energy. In light of this, Japan has been fortunate in its timing. Having gained access to Australia before competition grew fierce, it now needs to consolidate this position if it hopes to avoid fluctuating prices when China, Korea, India and Malaysia join the race for coal seam LNG.
A service of YellowBrix, Inc.
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