Shale revolution that shocked U.S. markets heads to Japan

Shale revolution that shocked U.S. markets heads to Japan

The U.S. shale revolution that turned North american energy markets upside down is finally headed to the world’s largest consumer of LNG: Japan.

Jera Co., a joint venture (JV) between tokyo electric power Co. Holdings inc. and Chubu electric power Co., can get its 1st LNG cargo produced from the formations in early Jan, spokesman Atsuo Sawaki said. it'd be the primary provide to reach the asian nation from Cheniere Energy’s sabine Pass terminal.

The shipment brings to fruition a contract signed more than 2 years ago. While U.S. exports are still relatively tiny, {they are|they're} having an impact as a result of the contracts are tied to U.S. natural gas prices rather than crude oil that almost all of the LNG coming to Japan is linked to. They conjointly allow for switching of cargo destinations—a key concern for importers, like Japan, that are pressuring producers for additional flexibility.

“The 1st U.S. cargo marks a turning point,” Kerry Anne Shanks, an analyst at Wood Mackenzie, said by email. “Japan’s LNG imports are virtually exclusively valued on an oil-index price. U.S. LNG provides abundant needed index diversification of Japan’s LNG value.”

About 70,000 metric tons of LNG produced at the sabine Pass terminal was loaded onto the Oak Spirit vessel on Dec. 7, consistent with Sawaki. Jera has a short-term deal with Cheniere to receive as much as 700,000 tons of LNG from July 2016 to january 2018.

Greater Flexibility

Japanese companies have contracted regarding 14 million tons of LNG on long-term contracts that begin between 2017 and 2022 from U.S. projects within the lower 48 states, according to a Nov presentation by the Japan Oil, Gas and Metals National corp.

Japan, China and south korea, that account for more than half of the worldwide LNG trade, are going to be oversupplied by regarding 20 Bcm in 2017 to 2018, the International Energy Agency said in a report earlier this year.

Japan is probing whether destination restrictions in most of its LNG contracts violate fair trade laws. LNG sellers can benefit by allowing buyers additional flexibility to resell cargoes because it'll build the market additional efficient and stimulate demand, Jera Chairman Hendrik Gordenker said in a Dec. 1 interview.

Cheniere’s sabine Pass terminal shipped the primary U.S. LNG cargo created from shale in february to Brazil.