This document discusses the potential for LNG exports from the United States to Japan. It notes that Japan is the world's largest LNG importer and will likely increase imports following the Fukushima disaster. The US has large natural gas reserves and proposed LNG export terminals on the Gulf Coast that could supply Japan. An analysis of delivery costs suggests US LNG delivered to Japan could be competitive at $7.17/MMBtu compared to other suppliers. However, risks include regulatory hurdles, potential oversupply from other exporters, and environmental concerns around fracking. If these challenges can be addressed, US LNG exports have the potential to supply growing Asian demand.

1. 18 S C A N D I N A V I A N O I L - G A S M A G A Z I N E N O . 5 / 6 2 0 1 1
Japan’s LNG Import
Sources
Japan is intent on diversifying the
sources of LNG import to get better
control on LNG prices and attain
reliability of supply in case of
adverse weather/geopolitical events
in any particular region of the
globe. Japan’s LNG import by
country in 2009 is shown in Table
1.
The main contenders to supply
LNG to Japan are Qatar, Australia,
Malaysia and Russia. Out of these,
Russia’s contribution would defi-
nitely increase from 4.3% (Table
1) to a higher percentage when
Sakhalin-II LNG plant reaches its
peak production and if the pro-
posed Vladivostok LNG terminal
becomes operational by 2017,
although reliability of Russian
supply will always remain a big
question. Malaysia could be an
eager exporter but it already sup-
plies almost 20% of Japan’s
requirement, therefore Japan may
think of exploring other markets.
Australia’s case is similar to that of
Malaysia. In the case of Qatar, all
the parameters appear to be satis-
fied except for the concern regard-
ing long-term political stability in
the Persian Gulf region.
It makes sense, therefore, for Japan
to review the possibility importing
US natural gas. In fact, officials
from TEPCO Trading Corporation
and Chubu Electric Power
Company in Japan have already
shown interest in importing LNG
from US producers [4].
At this stage it is worthwhile to
consider several factors that would
govern the feasibility of exporting
US natural gas (in form of LNG)
to Japan and other Far-East coun-
tries. Some of these factors dis-
cussed in this article are:
• US natural gas spare capacity.
• US liquefaction facilities.
• Financial feasibility of US LNG
export.
• LNG Project Finance.
• Possible impacts of regulatory
changes related to frac jobs and
other risks for US LNG develop-
ment.
US Spare Capacity
First, with regards to US natural
gas spare capacity, currently daily
consumption of natural gas in the
US is approximately 62.4 Bcf/d
while “technically recoverable”
gas resources is estimated at 1,836
tcf out of which 616 tcf (unproved
shale gas volume is 827 tcf per
EIA, Annual Energy Outlook
2011) is attributed to shale gas
[5]. If these results are combined
with the Department of Energy’s
latest determination of proved gas
reserves, the US has enough natu-
ral gas for the next hundred years.
It should be noted that spare
capacity, in a capitalistic system,
does not necessarily mean domes-
tic production minus domestic
consumption. In an open market,
a commodity will chase the high-
est price quoted for it globally.
A quick review shows that all the
large US shale gas basins are
located far away from the US west
coast. Also currently there is no
facility on the west coast for gas
liquefaction. Geographically, the
Gulf of Mexico coast is the next
coast line closest to the Far-East.
Eagle Ford, Barnett, Woodford,
Haynesville and Fayetteville shale
gas basins are all located in states
bordering the Gulf Coast.
Forecasted gas production from
Eagle Ford shale, which is closest
to the Gulf Coast, is provided in
Table 2. The predicted growths in
some of the other prominent shale
basins are shown in Figure 1.
These basins are easily accessible
to both the liquefaction facilities
proposed on the Gulf of Mexico
coast. A rapidly rising production
trend is evident from these fore-
casted data, which indicates that
sufficient quantities of LNG could
be exported if a reasonable net
margin is assured to the producers.
G A S N E W S
Japan is world’s largest liquefied natural gas (LNG) importer. Japan’s LNG import was 3.18 trillion cubic
feet (65.2 million tonnes) in 2009 [1] and is expected to reach 4.0 tcf in 2035 [2]. In fact, there is a
distinct possibility that due to the recent disasters at the Fukushima I Nuclear power plant, Japan will opt
for increasing its LNG import. This presents a unique opportunity for gas producers to sell more LNG to
Japan.
BY D. K. DAS
Prospects of LNG exports from
the United States to Japan US gas for Japan?
An LNG liquefaction
plant (photo: Center for
Liquefied Natural Gas)
Table 1: Japan’s LNG im-
ports by country, 2009 [3]
Table 2: Forecasted gas pro-
duction from Eagle Ford
Shale [6, 7]

2. LNG Facilities
Second, at this stage let us exam-
ine the facilities on the US Gulf
coast through which natural gas
could be sent to Japan and Korea.
Freeport LNG and Macquarie
Energy have planned to develop
four liquefaction trains each with
a capacity of 330 MMcf/d at
Freeport LNG’s existing LNG
import terminal on Quintana
Island, 70 miles south of Houston,
Texas. Following government
approval, the start-up is expected
in early 2015. The project is
planned to draw shale gas from
the Barnett, Haynesville, Eagle
Ford and Marcellus basins.
Cheniere Energy’s Sabine Pass liq-
uefaction project is being designed
to permit up to four modular LNG
trains – each with an average pro-
cessing capacity of 466 MMcf/d.
Subject to regulatory approvals
and long-term customer contracts,
LNG export is expected to com-
mence as early as 2015.
These proposed export terminals
will be located in one of the largest
gas producing regions in the
world, near two large natural gas
trading hubs – the Houston Ship
Channel and Katy – with access to
the extensive US pipeline network.
Moreover, with the opening of the
Panama Canal to LNG ships in
2014, cargoes being exported out
of Freeport/Cheniere will have a
much shorter and quicker access
to the Far-East, prime area for LNG
demand.
LNG Export Economics
Third, a preliminary review of the
economics of US LNG export is
warranted. Such a review will scru-
tinize the conventional thinking
that the disconnect between crude
linked LNG and North American
gas is the driver which encourages
US producers to push for LNG
exports. Towards that end, some
calculations can be made to estab-
lish the cost of supplying LNG to
Japan and Korea.
The breakeven prices of shale gas
for four major shale gas basins are
presented in Table 3. Now, at a
minimum, by adding cost of trans-
portation of gas to liquefaction
facility, liquefaction cost, shipping
cost, and storage & regasification
cost, one can calculate the cost of
natural gas at the point of unload-
ing in Japan/ Korea:
• Delivery cost to liquefaction
facility: Based on a typical
maximum system-wide base
rate for firm and interruptible
transportation service of
$0.20/MMBtu plus a 3% Fuel
and Lost and Unaccounted For
(LAUF) gas charge, the total
variable cost per unit for trans-
portation from processing plant
to a liquefaction facility approx-
imately 300 miles away can be
estimated at $0.32/MMBtu [11].
• Liquefaction cost: In 2010,
Cheniere Energy mentioned that
it would charge between $1.40-
$1.75/MMBtu for liquefaction
[12] although according to Pan
EurAsian, an advisor to the LNG
industry, it appears to be $1 too
high. ICF calculated liquefac-
tion cost at $2.09/Mcf for a LNG
plant in Russian Far East [13].
For the present study an average
of the Cheniere fees,
$1.58/MMBtu, has been consid-
ered.
• LNG Shipping cost: According to
Brito and Hartley [14], the unit
costs of LNG shipping have been
reduced by 40 percent during
1997-2007. A shipping cost of
$0.89/Mcf from Russian Far-
East to the North American west
coast has been considered in Ref
13 and is being used in the cal-
culations here.
• Storage and Regasification
cost: One IEA report [15] men-
tions that regasification could
add $0.30/MMBtu to the price of
imported LNG, while ICF
International [13] points to a
regasification cost of $0.38/Mcf.
If the cost of transporting the gas
to a liquefaction facility, liquefac-
tion cost, LNG Shipping cost and
storage and regasification cost are
added to an average breakeven cost
of $4.00 (Table 3), the cost of nat-
ural gas post-regasification at a
Japanese/Korean LNG facility will
be ~$7.17/MMBtu. This value is
somewhat higher than PFC
Energy’s estimate of $5.55/MMBtu
(it includes a storage and regasifi-
cation cost of $0.38/MMBtu added
by this author) for Western Canada
natural gas delivered through
Kitimat to Japan. The PFC estimate
suggests a netback for the produc-
er-owners of Kitimat of $2.93 to
$7.23/MMBtu based on Japan
Crude Cocktail (JCC) indexation
and $60-$80 per barrel crude oil
[16].
At this point a review of JCC prices
in the near future is warranted.
Japan imports most of its crude oil
from the countries around the
Persian Gulf. Oman crude oil
futures at the Dubai Mercantile
Exchange range between $105 and
$110/bbl during the period May
2011 to December 2016 (this
futures contract is used as a
benchmark for Saudi Arabia, Iran,
Iraq, the UAE, Qatar and Kuwait
crude sold in the Asia-Pacific mar-
ket). NYMEX WTI futures follow a
similar trend. Given such expecta-
tions for future crude oil prices,
the $7.17/MMBtu cost of LNG FOB
Japan post-regasification as calcu-
lated above should provide any
LNG exporter a significant net
margin. Figure 2, extracted from
Sempra LNG presentation, presents
the Pacific Basin Premium, caused
due to oil-index pricing, as a per-
centage of JCC.
It may be worthwhile to note here
that Japanese import prices aver-
aged $9.04 per million British
thermal units last year. According
to Daniel Muthman of E.ON
Ruhrgas, most LNG long-term
contracts are now priced at dollar-
per-MMBtu rate that is 14-15% of
the dollar-per-barrel oil price.
Financing
Fourth, potential sources of project
financing need to be considered as
LNG projects are extremely expen-
sive. Funding sources include
Equity capital markets, Long-term
Debt, ECA (Export Credit Agency)/
Multi-Lateral, Commercial bank
loans, Equipment financiers,
Government funding and Trade
players.
For PNG liquefied natural gas
project in Papua New Guinea,
S C A N D I N A V I A N O I L - G A S M A G A Z I N E N O . 5 / 6 2 0 1 1 19
G A S N E W S
Table 3: Break-even costs at various shale gas basins
Figure 1: Production from five key US gas shale basins [8]

3. operated by Exxon Mobil, $US5.5B
is planned to be funded from equi-
ty contributions from the partners.
Out of the remainder $US14B in
project financing, $US8.3B will
originate from ECAs, $US1.95B
from uncovered commitments
from a syndicate of 17 commercial
banks, and $US3.75B as co-lend-
ing from ExxonMobil.
In the past, Japanese financial
support has taken various forms
such as Overseas Investment
Loans, Untied Loans, Import Loans
and Direct Loans. In certain cases
Japan government has assisted
through Overseas Government
Cooperation Funds, credit guaran-
tees from Japan National Oil
Company, and investment and
trade insurance from the Ministry
of International Trade and
Industry (MITI).
Environmental Impact
Fifth, risk to potential US export of
LNG may arise from concerns over
the environmental impact of frac
jobs, over-supply of LNG, potential
carbon tax imposition, wide-scale
shale gas discovery in China (and
Europe) and de-linkage from JCC
indexation.
The US Environmental Protection
Agency has proposed a new study
to investigate the frac job process
and determine whether drilling
techniques pose a risk to drinking
and underground water. A prelimi-
nary report is scheduled for release
by the end of 2012, with a com-
plete report to be published in
2014.
The fast ramp-up in LNG produc-
tion in Qatar and Australia has the
potential to create a LNG glut in
global markets. Within the next
five years Australian exports are
planned to exceed 50 million tpa
from current levels of less than 20
million tpa, ranking it just behind
Qatar.
Risks to US gas exports may also
arise due to the incentives being
offered to the drillers by the
Chinese government [18]. In case
China becomes self-sufficient in
unconventional gas, it would
reduce imports of LNG.
De-linkage of LNG prices from JCC
may be detrimental to US gas
export. In this regard, CERA energy
executives (2011) have predicted
that despite increasing influence of
Western spot prices in short- to
mid-term LNG contracts, long-
term LNG contracts will continue
to be linked to oil prices, perhaps
with adjustments in the face of any
ongoing gas glut.
Permitting delays and any post-
ponement in constructing the liq-
uefaction facilities on the Gulf
coast may also lead to US losing
out the LNG race to Australia,
Qatar and Malaysia.
Conclusion
This preliminary study shows that
conditions are opportune for the
US to export LNG to Japan as well
as Korea and China. The job cre-
ation prospects of such export and
current US administration’s focus
on low carbon fuels would defi-
nitely act as boosting factors for
such export plans. Of course there
are regulatory risks involved which
could severely restrict shale gas
production and derail hopes for
export. Moreover, the liquefaction
facilities on the Gulf of Mexico are
yet to be financed and constructed.
Export of large quantities of LNG
from Russia, Qatar and Australia
could be impediments as well.
Regardless, considering the fact
that Japan, Korea and China
would definitely diversify their
source of energy supplies and are
among the largest importers of
LNG globally obviously means that
US LNG can play a significant role
in the Far East in the near future.
Recent unfortunate incidents in
the Japanese nuclear sector also
point towards increased Japanese
LNG import in the future. Finally,
exporting attractively priced gas as
LNG from the US will help
undoubtedly support continued US
domestic production, balance
global market dynamics and offer
global buyers a stable, attractively
priced fuel supply alternative. I
20 S C A N D I N A V I A N O I L - G A S M A G A Z I N E N O . 5 / 6 2 0 1 1
The Author:
Mr. Das holds an MBA degree from
the University of Chicago and an
MS in engineering from the
University of British Columbia in
Canada. He has 13 years of experi-
ence in mining and energy.
References
[1] True, W.R., “2011 LNG World Trade”, Published in the Oil & Gas Journal, February 7, 2011.
[2] “International Energy Outlook 2010”, prepared by US Energy Information Administration,
www.eia.doe.gov/oiaf/ieo/nat_gas.html
[3] “Share of Total Primary Energy Supply in 2008 – Japan”, Published by IEA Energy Statistics. Refer
to www.iea.org/statist/index.htm
[4] “Japanese utilities keen to import LNG from US to diversify sources”, Reuters, March 2, 2011.
[5] “Potential Supply of Natural Gas in the United States”, (December 31, 2008), published by the
Potential Gas Agency, Colorado School of Mines, Golden, Colorado, 80401-1887.
[6] “Gas Production Statistics – Eagle Ford Information” published by the Rail Road Commission of
Texas, March 30, 2011.
[7] “Economic Impact of the Eagle Ford Shale”, prepared by Center for Community and Business
Research at the University of Texas at San Antonio Institute of Economic Development, February
2011.
[8] “North American Natural Gas”, lecture presented by Jay White, TransCanada, August 12, 2010.
[9] “Where are the $5 Gas Plays? Who’s profitable in this market?”, Hart Energy webinar, April 2009.
[10] “Review of Shale Economics”, By Anish Patel, Research Analyst Credit Suisse, June 2010.
[11] 131 FERC ¶ 61,037, United States of America, Federal Energy Regulatory Commission, Duke
Energy Guadalupe Pipeline, Inc., Order of Hearing, Issued April 15, 2010.
[12] “Cheniere Appoints Bechtel to add Liquefaction Facilities at Sabine Pass LNG”, LNG World News,
June 11, 2010.
[13] Gas Supply Potential and Development Costs of Rocky Mountain Gas and LNG Delivered to the Pacific
NW, prepared by ICF International, Prepared for Jordan Cove Energy Project, L.P., 2008.
[14] Brito, D.L. and P.R. Hartley (2007). “Expectations and Evolving World Gas Market”, The Energy
Journal 28 (1): 1-24.
[15] The Global Liquefied Natural Gas Market: Status and outlook, EIA Report #: DOE/EIA-0637, Release
Date: December 2003.
[16] Natural Gas Week, June 21, 2010.
[17] Global Natural Gas Market Fundamentals, lecture presented by Darcel L. Hulse, President & CEO of
Sempra LNG, July 19, 2010.
[18] “Oil & Gas Reality Check 2011”, Prepared by Deloitte Global Energy & Resources Group, page 10.
Figure 2: Pacific basin premium due to oil-index pricing [17]
G A S N E W S