REGIONAL LNG: Japan LNG demand seen to increase on new power plants

Japan could see up to 15 new gas-fired power plants added to its electricity generating capacity by 2010, Tadahiko Ohashi, chief executive economist of Tokyo Gas Co. Ltd. was quoted by Dow Jones as saying Tuesday.

The increase in gas-fired generation will result in a potential increase in Japan's requirements for liquefied natural gas of about 15 million metric tons a year by 2010, he said.

Gas-fired power generation remains the most feasible option for Japan as the construction of new nuclear plants remains in doubt following a scandal over falsified inspection reports at Tokyo Electric Power last year, while environmental constraints hinder the use of other fuel sources.

Concerns have grown about the possibility of power shortages in Japan in the summer months since Tepco shut down all of its 17 reactors for safety checks following the scandal. Tepco has since restarted one reactor in late May.

"In the power sector, we are anticipating that (new) nuclear power plants will not be constructed as planned. That means in the quite near future, Tepco and other power companies would need some backup by coal, gas, oil or others," Ohashi said.

But stringent environmental considerations will mean that the most feasible option would be for electricity generation fired by natural gas, he noted.

"Due to the Kyoto Protocol, (other alternative fuel sources for electricity generation) is very tough. Most of this gap will be filled by natural gas," he said. "Japan as a whole would have to make additional commitments to Malaysia, the Sakhalin project or Indonesia."

Ohashi said Japan's total LNG demand is expected to grow to over 80 million metric tons by 2010. LNG demand was at around 54 million tons in 2000, he said, citing estimates from the Institute of Energy Economics, Japan.

About 75% of that growth in Japan's potential LNG demand will be used to fuel gas-fired power plants, Ohashi said.

Ohashi said apart from current contracts with Sakhalin and Malaysia's Petronas, Tokyo Gas is still on the lookout for attractive LNG supply deals.

"All the time, we have extended antenna to get the best deals. But in the coming 10 years or so, almost all the required supply (for Tokyo Gas) has been filled up," he said.

"Almost half or 45% has been committed to Malaysia," he said.

The company currently imports a total of 7.5 million tons of LNG a year mainly from Malaysia, Indonesia, Brunei, Australia, the U.S. and Qatar.

Last month, Tokyo Gas signed a 24-year supply contract for LNG with Russia's Sakhalin Energy Investment Co. Under the contract starting April 2007, Japan's largest city-gas supplier is expected to receive a maximum of 1.1 million metric tons of LNG a year between 2007 and 2031 on a free-on-board basis.

Tokyo Gas also holds a contract for the delivery of 1 million tons of LNG a year with ConocoPhillips from the Bayu-Undan field, located in about 75 meters of water 500 kilometers northwest of Darwin and 250 kilometers southeast of Suai, East Timor.(*)