beyondbrics

Japan’s thirst for liquefied natural gas is well known. Since the world’s third largest economy shut down almost all of its nuclear reactors following the Fukushima disaster last year, imports of the relatively clean-burning fuel have risen sharply, as utilities have scrambled for shipments anywhere they can find them. Even Belgium – a non-producing nation – showed up in Japan’s official list of LNG suppliers this year, after it re-routed tankers that had already passed customs.

Less well appreciated, however, is Africa’s vital role in meeting that demand.

As Japan’s imports from decades-old suppliers such as Malaysia and Australia have held reasonably steady, with volumes limited by long-term contracts, producers in Nigeria and Equatorial Guinea, in particular, have been stepping in. Faced with weaker demand from their traditional customers in southern Europe, they’ve been only too happy to ship to Japan.

Trade statistics show that Japan imported 7.6m tonnes of LNG produced in African nations in the first ten months of this year. That was a 140 per cent increase on 2011, accounting for 10 per cent of all LNG imports – double the share of last year.

And it’s transforming bilateral trade. According to IMF figures, Japan’s overall imports from Nigeria totaled just over $3bn in the first seven months of this year – almost double the total for the whole of 2011, and three times the sum for 2009 and 2010 put together. Imports from Equatorial Guinea, meanwhile, were worth $1.6bn between January and July – which was more than Japan took from the country in the 30 years leading up to 2007.

The Japanese government would surely approve. The broader the range of suppliers, the better Japan’s chances of bringing down the cost of long-term take-or-pay contracts with the likes of Qatar and Indonesia, which are normally of at least 15 years’ duration.

Trade minister Yukio Edano has said the country’s LNG bill – as much as Y6tn ($73bn) this year, from Y3.5tn before the disasters – is simply “too high”.

Tokyo also wants to encourage more spot-based trading, to limit producers’ bargaining power. Spot and short-term imports, under contracts of less than four years, leapt 50 per cent to 61.2m tonnes last year, or just over a quarter of total LNG trade, according to the Paris-based International Group of LNG Importers – driven largely by the Fukushima meltdown.

Hence the interest in emerging producers in African nations, which pump all they produce into spot markets and short-term contracts, much of it destined for Europe.

As politicians dither over Japan’s future energy policy, imports of LNG should hold firm, say analysts.

That means a continued emphasis on LNG project development by the country’s big trading houses – the sogo shosha – which have historically supplied Japan with much of its volumes.

Mitsui & Co, for example, the second biggest of the sogo shosha by market value, has grand plans for an LNG project off the coast of Mozambique, operated by Anadarko, in which it has a 20 per cent stake. The project’s partners are currently looking to sign long-term contracts with consumers, aiming to make a final decision on investment by the end of next year.

Meantime, says a Mitsui executive, “we are hunting many African cargoes.”

Related reading:
Natural gas: Asia beckons as promising market for LNG, FT
East Africa: ‘Embarrassment of riches’ hard to exploit, FT