Japan to buy Canadian shale gas

During a visit to Ottawa, the Japanese Prime Minister, Shinzo Abe, announced that Japan would like to reinforce imports of Canadian natural gas in order to diversify supply in the post-Fukushima nuclear dearth.

During a joint press conference with his Canadian counterpart, Stephen Harper, Abe stated that Tokyo “strongly hopes to strengthen cooperation” with Ottawa.

Huge deposits of shale in the west mean that Canada is the third largest producer of natural gas. “Canada possesses a significant level of energy resources, including natural gas, which show considerable potential in terms of energy cooperation” he noted. Japan’s natural gas imports have increased since the Fukushima disaster and now the country wants to “ensure a stable supply of LNG (liquefied natural gas) at competitive prices” the Prime Minister explained.

At his side, Stephen Harper, whose government is a strong supporter of fossil fuels,  stated that he and Abe met with Canadian business leaders and that “the discussion was focused on energy.” The two countries are currently conducting two “very important” economic negotiations, he continued without giving any further details.

Before these comments, the Japanese media had said that Tokyo and Ottawa may come to an agreement which would allow Japan to import up to 40 million tons per year of Canadian shale gas. This would represent over 45% of the volume of LNG imported by Japan in 2012.

The media also reported on the possibility of Japanese aid to facilitate Canadian exports of LNG. Tokyo could, among other possibilities, assist in the construction of pipelines in Canada to transport gas from production sites to ports, while supporting the development of an infrastructure to help process shale gas into LNG.

As the third largest global economy, Japan is the largest consumer of LNG in the world. Yet, it pays higher prices for the gas than both Europe and North America. Asian contracts are often long-term and are as such based on oil price indexes, meaning the cost is ultimately higher than those on the gas market for short-term contracts.

This discrepancy is even more detrimental to Japan since it had to greatly increase imports of natural gas to compensate for the shutdown in nuclear power after the Fukushima disaster in March 2011. As a precaution, none of the 50 reactors are now in operation.

If this more recent agreement with Canada materializes, it will occur after two recently concluded agreements with the United States for the delivery of 6.7 million tons of shale per year to Japan from 2017.  Japan clearly hopes to negotiate lower prices by multiplying contracts of this kind with other shale-rich nations.

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