Regional LNG: Growing LNG demand creates supply worry

Growing demand is creating a shortage of LNG that has forced some gas companies to curtail sales to commercial customers, The Asahi Shimbun reported Wednesday.

An unusually cold winter has increased household consumption, while industry has been switching from oil to LNG partly because it has lower greenhouse gas emissions than other fossil fuels such as oil and coal.

It is difficult to increase imports flexibly because production is usually based on 15- to 20-year contracts. LNG accounts for almost all of the nation's gas imports.

Toho Gas Co. announced earlier this month that it has concluded a 20-year contract to purchase 520,000 tons of LNG annually from Malaysia from April 2007.

It was a pressing issue for the Nagoya-based gas utility to secure an additional stable supplier.

For the year ending Friday, the company's existing contracts covered 2.42 million tons, falling short of the projected sales of 2.7 million tons.

The tight supply has since summer prompted Toho Gas to request some industrial customers to delay plans to introduce large gas-fired cogeneration systems.

The company has also made spot purchases, which carry higher prices than do long-term contracts.

Emergency imports from Africa last autumn apparently cost the company more than double normal prices.

In addition to the severe cold this winter, plants have been operating at high levels in the Tokai region around Nagoya, pushing up demand.

During the 10 months through January, Toho Gas sold 2.7 billion cubic meters of gas, up 16 percent from a year earlier.

The increase was substantially higher than the company's projected annual growth of 5 percent through fiscal 2008.

The situation is the same elsewhere in Japan.

For the 10 months through January, city gas sales nationwide rose 8.2 percent from a year earlier.

An industry official said he suspects that several companies including Toho Gas are deferring sales to large customers because they cannot reduce supply to households.

Electric power companies, which use LNG for thermal power generation, are also reviewing their dependence on natural gas.

Tokyo Electric Power Co., for example, plans to begin directly importing crude oil in fiscal 2006. Chubu Electric Power Co. is preparing to restart a suspended petroleum thermal power station.

Another factor squeezing supply is obsolescence of production facilities, particularly in Indonesia, the world's largest producer.

The prices importers paid for LNG averaged at 39,791 yen per ton during the October-December period, up 28 percent from a year earlier. Prices in the spot market were up to twice that high.

The price increase was a major factor behind a 31.7 percent drop in Toho Gas' net profit for the nine months through December.

Japan is also competing with other importers. Global demand is projected to grow an average 2.3 percent annually through 2030, according to the industry ministry and other sources.

The Japanese government plans to increase the share of natural gas in the nation's primary energy sources from 13 percent in 2000 to 15 percent in 2010 and about 18 percent in 2030. The government aims to promote fuel cells and cogeneration systems that use gas.

Companies such as Tokyo Electric Power, Tokyo Gas Co. and Osaka Gas Co. are seeking development rights to overseas gas fields, but the United States and China are also trying to secure greater LNG supplies.

Takeo Suzuki, chief economist at the Institute of Energy Economics, Japan, expects the supply shortage to continue for a few years partly because production will not start until 2010 at new large-scale gas fields in the Middle East and Africa.(*)