Japan’s Osaka Gas sees potential in mid/downstream LNG

Japanese utility Osaka Gas is looking at investing in and building gas-to-power generation capacity as well as LNG import terminals in southeast Asia, according to a senior executive on 24 October.

“We have a good [gas-to-power] model in Japan, so we’d like to replicate that model across southeast Asia,” said Yoshihiko Kimata, the utility’s representative for the region, in an interview at the Singapore International Energy Week conference.

Emerging markets in southeast Asia, including Indonesia, the Philippines and Thailand, have announced intentions to increase the share of gas in their power mix, while reducing coal or oil usage.

The first few steps would be helping these emerging markets develop the right infrastructure to receive and use natural gas, Kimata said. It can be in the form of funding or providing expertise in the midstream and downstream sectors.

Regasified LNG is widely viewed as a viable source of gas supply.

LNG demand from southeast Asia is expected to hit 70mtpa by 2035 as the region continues to install new import terminals and gas-fired power generation capacity.

The region is also expected to increase the use of LNG in small-scale distribution, for transportation, bunkering and trucking.

“We see [high demand] potential in southeast Asia,” Kimata said, but added that competition to supply this region is steep from both Japanese companies, consortia and international majors.

Japanese companies, including Mitsubishi, Mitsui and Tokyo Gas, have already announced plans to invest in or develop gas and power infrastructure in southeast Asia.

Many Japanese utilities and trading houses are offering their contractual LNG offtake from the US as part of a supply chain package to markets, such as southeast Asia, to offset shrinking demand in Japan.

However, the premium that LNG prices have over wholesale gas prices in southeast Asia can deter new buyers.

Wholesale gas prices for Indonesia, Malaysia, the Philippines, Vietnam and Thailand in 2016 were estimated at $6.50-10.50/MMBtu, based on average crude oil prices of $45.00/bbl.

Spot LNG prices for east Asia in 2016 ranged from $4.05-9.50/MMBtu, according to ICIS data.

Although the price premium to gas has narrowed slightly as LNG supply becomes abundant, Kimata said it would be challenging to convince new buyers unless the supplier provides solutions that benefit both counterparties.

“It could be that they pay a little less for the LNG supply and we receive value elsewhere along the supply chain,” Kimata said.

A competitive advantage that Osaka Gas has could be its well-developed LNG trucking business in Japan, according to Kimata, as the utility can replicate this delivery model in southeast Asia.

“We can use this ‘virtual pipeline’ to deliver to places not connected to the grid, but [delivery via trucks] depends on [the state of] road construction and communications,” he said. xieli.lee@icis.com