With output from most of Japan's nuclear reactors idled since the meltdown at the Fukushima Daiichi nuclear power plant and government officials proposing to phase out nuclear power by the late 2030s -- and with North American natural gas prices below $3/MMBtu -- the country's largest utility has entered into negotiations for North American liquefied natural gas (LNG).

"It is true that we are in the stage of negotiation to secure liquefied natural gas supplies from North America," Tokyo Electric Power Co. (TEPCO) spokesperson Mayumi Yoshida told NGI Wednesday, although she declined to give any details of the negotiations.

Last week Japanese government officials announced a proposal to phase out nuclear power by the late 2030s, a major policy shift that ensures the country will need to rely on imported energy and could secure its position as the world's biggest importer of LNG (see Daily GPI, Sept. 18). According to media reports, a cabinet panel of Prime Minister Yoshihiko Noda's government proposed to reverse plans to rely on nuclear power for 50% of domestic energy needs by 2030. On Wednesday the cabinet said it would take the proposal into consideration.

The change in Japan's attitude toward nuclear power was sparked by the March 2011 meltdown at TEPCO's Fukushima Daiichi nuclear power plant (see Daily GPI, March 14, 2011). Before that catastrophe, the country relied on nuclear power to meet one-third of its domestic energy needs. Only two of the nation's 50 nuclear reactors are currently operational, with the rest idled pending safety inspections by the government.

Last June, the U.S. Energy Information Administration (EIA) predicted that Japan's energy fuel mix would likely change in the wake of Fukushima, with natural gas rising in importance and becoming the "preferred fuel of choice" to make up for the shortfall from the reduced nuclear capacity. Overall imports of LNG in Japan have been trending up since 2003, according to EIA, with total LNG imports exceeding more than 10 Bcf/d by April 2011, most of which was used for power generation.

TEPCO's LNG search has not been confined to North America. Earlier this year Australian subsidiaries of Chevron Corp. signed additional binding agreements with TEPCO for LNG offtake and equity interests in the Chevron-operated Wheatstone Project in Western Australia (see Daily GPI, June 19). TEPCO is to purchase an additional 0.4 million metric tons per year of LNG from Wheatstone for up to 20 years. Through a related company TEPCO also would acquire from Chevron a 10% participating interest in the Wheatstone field licenses and an 8% interest in the gas processing facilities. Those agreements increased TEPCO's total Wheatstone LNG offtake to 4.2 million metric tons per year, Chevron said.

In August ConocoPhillips said it had sent three LNG shipments to Japan out of the Kenai LNG plant on Alaska's Kenai Peninsula and expected to send one or two more by year's end (see Daily GPI, Aug. 21). The operator had considered mothballing the terminal after more than 40 years of selling LNG to Japan, but decided to send spot cargoes of LNG to Japan following the Fukushima incident. The plant's export license is due to expire in 2013 and ConocoPhillips has said the future of the plant "depends on gas supply in Cook Inlet and demand for LNG in Asia."

Freeport LNG Expansion LP recently struck 20-year liquefaction tolling agreements with Osaka Gas Co. Ltd. and Chubu Electric Power Co. Inc. covering 100% of the liquefaction capacity of the first train of Freeport LNG's propose liquefaction and LNG loading facility near Freeport, TX (see Daily GPI, Aug.1).

The Department of Energy has postponed the release of the second part of its study on the economic impact of exporting domestically produced LNG until year-end (see Daily GPI, Sept. 19).

On Wednesday Canadian Minister of Natural Resources Joe Oliver concluded what he said had been a "successful" economic mission to Japan, which included an appearance at the Liquefied Natural Gas Producer-Consumer Conference in Tokyo. Canadian exports to Japan are vital to Canada's future prosperity, he said. Canada has several LNG export projects on the drawing board that would be located along British Columbia's west coast.

"Our government is aggressively pursuing agreements with countries in the Asia–Pacific region to give Canadian businesses an opportunity to compete in the fastest-growing region in the world," Oliver said.

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