Tokyo Gas Co Ltd, Japan’s biggest gas utility, which – according to Reuters – has contracts in place to buy 1.9 million tonnes per year (tpy) of LNG from U.S. producers, is planning to hedge the LNG imports from the U.S. by buying more shale acreage in North America. The company already has a stake in a shale gas field in Texas’ Barnett Basin from Quicksilver Resources that would give it 0.35 million to 0.5 million tpy of gas output.
“We try to expand our investment in the shale gas production in the United States. That can be the natural hedge for LNG,” said Shigeru Muraki, a board member and executive adviser at Tokyo Gas.
Muraki said U.S. gas delivered to Asian destinations is competitive to oil-indexed supplies when oil is at $70 a barrel, but loses its cost competitiveness at $50 a barrel. Tokyo Gas, along with Sumitomo Corporation and Gail, is a part of a joint venture owning ST Cove Point LLC. It is expected that up to 2.3 million tonnes per year of LNG will be exported by each for the period of 20 years.
Other foreign companies with investments in upstream shale operations in the U.S. include Indian Reliance Industries, Adani Group, and – previously mentioned – Gail India.
In December 2014, Gail signed an agreement to purchase between 3.4 million and 4.3 million cubic feet of natural gas, over the next 20 years, from the midstream subsidiary of Washington, D.C.-based WGL Holdings Inc. Meanwhile, Adani Welspun Exploration (AWEL) – an upstream oil and gas JV between Ahmedabad-based Adani Group and Mumbai-based Welspun Group – announced in November their interest in select Louisiana and Texas shale fields and some Alberta oil sands projects in Canada, planning to invest $1.5 billion in hydrocarbon-producing unconventional resources.
Finally, Reliance Industries, which has three upstream joint ventures exploring shale gas in the U.S. – with Chevron, Pioneer Natural Resource and Carrizo Oil & Gas, and a midstream joint venture with Pioneer – retreated from foreign investment under pressure from low crude prices. In October 2014, Reliance announced that it wishes to sell its 45 per cent stake in the Eagle Ford basin shale oil and gas venture in the US for an estimated USD 4.5 billion due to ‘negligible’ results.
Tokyo Gas chose to hedge its position on LNG despite the wide consensus being that until 2020 there will be an oversupply of the liquefied gas. This is believed to be caused by slower growth in China and a possible demand drop of 20 million tpy in Japan once it restarts 24 nuclear reactors.
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