WSJ:Itochu Buys Stake in U.S. Oil-and-Gas Producer Samson
By MARI IWATA
TOKYO—A combination of Japan's March earthquake and nuclear disaster with the U.S. shale-gas revolution could open up a new multibillion dollar business—exporting U.S. liquefied natural gas to Japanese customers.
Itochu Corp. confirmed Thursday it is buying a 25% stake in U.S. oil and gas producer Samson Investment Co. for $1.04 billion, saying that U.S. shale gas is cost-competitive compared with LNG imported to Japan from conventional sources in Asia-Pacific.
Even before the nuclear accident at Fukushima Daiichi, several other Japanese trading houses had invested in North American shale-gas reserves.
But now there is an added attraction—Japan's demand for gas has exploded as utilities scramble for fuel to make up for shuttered or quake-damaged nuclear output.
Only 11 of Japan's 54 nuclear reactors are currently in service due in part to damage but also a reluctance to restart units shut for routine maintenance, and at the current rate, all will be offline by May 2012.
In October, the nuclear sector produced 9.4% of Japan's electricity compared with 30% before the March disasters, Federation of Electric Power Companies of Japan data show. Gas-fired generators provided about 30% before March, and while recent figures aren't available, gas imports in October were 18% higher than a year earlier. Burning more coal or oil would compromise Japan's greenhouse-gas reduction efforts.
Gas prices in the U.S. have slumped due to rapid rises in output of gas trapped in shale on the back of new extraction techniques, such as fracking.
Itochu has the right to take gas equivalent to 1 million metric tons a year of LNG when Samson reaches its production peak, an Itochu spokesman said.
Benchmark Henry Hub natural-gas futures prices on the New York Mercantile Exchange are below $4 per million British thermal units, less than a third the price of LNG shipped to Japan under existing long-term contracts from suppliers including Qatar, Indonesia and Malaysia.
Would-be importers of U.S. gas face major logistical hurdles, however, which would add to the price, including getting the clean-burning fuel to Japanese LNG import terminals.
There are no LNG export terminals on North America's West Coast, though a $5.3 billion terminal planned in Kitimat in Canada's British Columbia is slated to be operational in about four years. But Kitimat is far from Samson's reserves in the Midwestern and Southern U.S. and difficult to link to via pipeline.
Yuji Morita, a senior research fellow at the Institute of Energy Economics, a Japanese think tank, says exports could go by ship from the Gulf of Mexico via the Panama Canal.
Itochu is open to all options, depending on "whether it makes economic sense," a spokesman said.
Canadian Natural Resources Minister Joe Oliver said earlier this month that his country's total gas reserves are equivalent to at least 100 years of domestic use, and it can export surplus gas to Japan and other Asian countries.
After factoring in conversion of gas into LNG and shipping costs, a seller can still offer prices that are competitive with LNG from conventional sources and make profit, Tokyo Gas Co. President Tsuyoshi Okamoto said recently.
Tokyo Gas is a partner of the Cordova Embayment shale-gas reserves in northern British Columbia, in which a Japan-South Korea consortium led by Mitsubishi Corp. has a 50% stake. Mitsubishi says it has been discussing with its partners the possibility of exporting LNG from the project to East Asia.
