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Japan Revs Up Drive for LNG
[Commentary] Concerns grow amid spikes in prices and intensifying global competition
Hisane Masaki (hmasaki)     Print Article 
Published 2008-01-30 05:05 (KST)   
Resource-poor Japan's drive for natural gas, as well as oil, has shifted to high gear, as the world's second-largest economy is increasingly concerned about its medium- and long-term energy security amid spikes in prices -- and intensifying global competition -- for the hydrocarbon resources.

For Japan, which imports almost all of its oil and natural gas, ensuring their stable supplies is a matter of life or death actually. Japan remains by far the world's largest importer of liquefied natural gas, buying about 40 percent of global imports. In 2006, Japan purchased 62.2 million tons of LNG from abroad, up 7.2 percent, or 4.2 million tons, from 2005, to supply 96.4 percent of its LNG needs.

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Indonesia was the largest supplier to Japan in 2006, exporting 13.99 million tons, followed by Australia, Malaysia, Qatar, Brunei and the United Arab Emirates, which shipped 12.16 million tons, 12.02 million tons, 7.48 million tons, 6.50 million tons and 5.31 million tons, respectively.

But Japan is increasingly alarmed by the red-hot global rush, as well as skyrocketing prices, for natural gas -- the environmentally friendlier fuel than oil. Global imports of LNG soared 10.8 percent in 2006 from 2005 to 158.8 million tons. The global rush for natural gas is led by China and India.

China, the world's fastest-growing major economy and the world's most populous country, started LNG imports in 2006, purchasing the fuel from Australia. China's LNG imports, which will begin or increase from Indonesia, Iran and other exporting countries as well as Australia, are expected to total between 45 million tons and 60 million tons in 2020, making it one of the world's largest LNG importers. India, the world's second most populous country, is also sharply boosting LNG imports to feed its high-flying economy. India imported 6.2 million tons of LNG in 2006, up 37.2 percent from 2005.

The Japanese government is exploring every avenue to ensure the nation's energy security in the medium and long terms. In line with the "New National Energy Strategy," adopted by the Ministry of Economy, Trade and Industry in May 2006, Tokyo is intent on strengthening relations with oil- and gas-rich countries through such means as increased official development assistance and conclusion of free-trade agreements with energy clauses incorporating trading partners' commitments to stable supplies.

The New National Energy Strategy also calls for "drastically strengthening the supply of risk money" related to the exploration and development of overseas oil and natural-gas reserves by domestic development companies. Until only a few years ago, the Japanese government had shied away from getting deeply involved in risky exploration projects abroad, in the wake of its much-criticized blunder over now-defunct Japan National Oil Corp. (JNOC). The government's recent strong backing for domestic energy companies engaged in foreign exploration and production of oil and gas marks a clear policy reversal.

In the current fiscal year, which started in April 2007, the government began to pump no small amount of public funds into private-sector efforts to secure oil, gas and other interests abroad. Public funds are being channeled, primarily through three government-affiliated organizations -- Japan Oil, Gas and Metals National Corp. (JOGMEC), Nippon Export and Investment Insurance (NEXI) and Japan Bank for International Cooperation (JBIC).

JOGMEC, which was established in 2004 as a successor to state-owned JNOC, raised, from fiscal 2007, its investment in promising exploration projects being implemented by domestic firms abroad to a maximum of 75 percent of the total investment amount from the previous 50 percent.

In the first case in which the new 75 percent ceiling on its financial support is applied, JOGMEC announced a decision last June to invest about 4.6 billion yen in a natural gas exploration project involving Itochu Corp. off Namibia. In the second such case, JOGMEC announced a decision the following month to extend about 8.6 billion yen for a natural gas exploration project involving Mitsui Oil Exploration Co. off the Gulf of Mexico in the United States.

Last November, JOGMEC also signed a comprehensive cooperation agreement with Vietnam Oil and Gas Group (Petrovietnam) to advance cooperative works between JOGMEC and Petrovietnam in the field of oil and gas business, mainly in exploration and production and research and development activities.

In April 2007, NEXI began to accept applications for a new type of trade and investment insurance scheme to cover possible losses incurred in overseas energy-development projects by Japanese corporations due to natural disasters, accidents and political or terrorist acts. The new product is offered with much lower premiums -- up to 75 percent lower -- than ordinary trade and investment insurance.

Like JOGMEC's greater investment, NEXI's new trade and investment insurance scheme is designed to encourage often risk-averse domestic firms to venture into high-risk projects abroad.

JBIC, one of the world's biggest international financial institutions, is also revving up its energy-related business activities, including stepping up loans for overseas energy projects involving Japanese firms. JBIC has also signed comprehensive partnership agreements with the governments, state-run oil and gas firms or other related organizations of many resource-rich countries, in hopes of ensuring stable supplies.

Last October, a BP-led consortium signed a nearly $900 million syndicated loan agreement with six international financial institutions, including two Japanese commercial banks, for its Tangguh LNG project in West Papua, Indonesia. The signing came about 14 months after the BP-led consortium inked a $2.6 billion syndicated loan agreement with JBIC, the Asian Development Bank and several international commercial banks to finance the project.

Under the Tangguh LNG project, the third major LNG facility in Indonesia after Arun in North Sumatra and Bontang in East Kalimantan, production and supply are scheduled to start at the end of 2008. As a result of the October loan agreement, the BP-led consortium secured all funds it planned to borrow from international financial institutions for the project.

The Japanese government-affiliated lender has also been strengthening relations in recent months with the Joint-Stock Bank of the Gas Industry, or Gazprombank as the subsidiary of state-owned Russian gas monopoly OAO Gazprom is commonly known. Last July, JBIC signed a loan agreement worth 10 billion yen with Gazprombank as part of efforts to strengthen ties with Russia, which has the world's largest reserves of natural gas.
Hisane Masaki is a Tokyo-based journalist, commentator and scholar on international politics and economy. This is basically the first part of an article that originally appeared on the Jan. 17 edition of LNG Global Monitor, an LNG news analysis and intelligence weekly published by the U.K.'s NewsBase Ltd. The LNG weekly, like other publications of NewsBase, is available only to subscribers.
©2008 OhmyNews
Other articles by reporter Hisane Masaki

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