IEEJ：April 2016 © IEEJ2016

Shale gas in North America andAsian LNG market
IEEJ-CGEP Seminar:
Pacific Rim energy trade and economic competitivenessin the age of shale oil and gas
April 7th, 2016
Tetsuo Morikawa
The Institute of Energy Economics Japan

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U.S. shale gas and LNG export projects
Production

LNG export projects with Japanese interests

Bcf$/MMBtu

3000

7

Henry Hub price

62500

5

Shale gas

2000

41500
31000
2

Nov-15Jun-15Jan-151

Aug-14Mar-14Oct-13May-13

Dec-12

Jul-12

Feb-12

Apr-11

Nov-10Jun-10Jan-100Sep-11

non-shale gas

5000Source: EIA, company websites
 Shale gas production still growing despite low price First LNG exported in February, and the U.S. will be the third largest LNG
exporter by 2020
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IEEJ：April 2016 © IEEJ2016

Natural gas demand in Northeast Asia
Natural gas

LNG imports

bcm

MT
1840

163530

TaiwanTaiwan141225
China
20

China

108

Korea

1510Japan

5Korea64Japan20
1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 1012
2011201220132014

2015

0
1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 1012
2011

2012

Source: Trade statistics
 Natural gas: 372bcm in 2015 (no growth since 2014)
 LNG: 153MT in 2015 (-6.6MT y/y)
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2013

2014

2015

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IEEJ：April 2016 © IEEJ2016

LNG balance outlook for Asia
Million Tonnes
600

Divertable supplies from Atlantic
New projects under plannning500

New projects with SPA/HOA signed
400

Existing projects
High demand300

Low demand

200
100

2030

2029

2028

2027

2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

0

Source: IEEJ LNG will be oversupplied at least till 2020
 Timely upstream investment is the key to meet the demand growth towards 2030
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IEEJ：April 2016 © IEEJ2016

Natural gas import prices$/MMBtu
25
Japan
UK

20

USA
JKM

15
105

2016/1/5

2015/7/5

2015/1/5

2014/7/5

2014/1/5

2013/7/5

2013/1/5

2012/7/5

2012/1/5

2011/7/5

2011/1/5

2010/7/5

2010/1/5

2009/7/5

2009/1/5

2008/7/5

2008/1/5

2007/7/5

2007/1/5

2006/7/5

2006/1/5

2005/7/5

2005/1/5

2004/7/5

2004/1/5

2003/7/5

2003/1/5

2002/7/5

2002/1/5

2001/7/5

2001/1/5

0Source: Trade Statistics, EIA, Energy Intelligence Asian Premium of LNG has diminished significantly, but can widen again if oil
prices rise
 Asia needs more rationale LNG pricing to reflect market fundamentals accurately
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IEEJ：April 2016 © IEEJ2016

Electricity and gas market liberalization in Japan
2011

2012

2013

Basic
ProblemCommittee

2015

2016

2017

Legal
revision

2019

2020

2021

2022

Legal
Revision

Electricity
Systems
ReformSubcommittee

Legal
unbundlingof the 9utilities

Full retailmarket
opening
Legal
Revision

Gas

2018

StrategicPolicyCommittee
Legalrevision

Electricity

2014

Gas SystemReform
Subcommittee

Full retailmarket
openingLegalunbundlingof the 3largestutilities

Electricity and gas market will be fully open in 2016 and 2017, respectively
 9 power utilities and 3 largest gas utilities will be legally unbundled in 2020 and 2022
 Flexible LNG supply is increasingly important for LNG importers in Japan
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IEEJ：April 2016 © IEEJ2016

How do we develop Asian benchmark price(s)?
Domestic approach

International approach

Gas market liberalization

Relaxation/Elimination ofdestination clause / Over supply

Domestic wholesale
price (hub) development

Spot market development

Divergence of
hub and oil-indexation prices

Divergence of
spot LNG and oil-indexation prices

De-oil-indexation ofimport prices

Spot LNG price(s) development

Asian benchmark price(s)International approach quicker to develop Asian benchmark price(s) of natural gas
Drastic demand/supply changes will accelerate the process

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IEEJ：April 2016 © IEEJ2016

LNG trading hub initiatives in Japan
Contract specifications
Commodity

LNG DES JapanPrice
quotations

U.S. dollars and cents per
MMBtu

Heatingvalue

9,000-12,000kcal/m3

Contractunit250,000MMBtu (abt. 5,000t)
or 50,000MMBtu (abt. 1,000t)

Contracting
monthMonthly forward contracts up
to 12 months ahead

Priceincrement$0.01/MMBtu

Settlement
price

RIM DES JapanJOE started non-deliverable forward in December 2013
 First trade in July 2015
 Lack of physical market liquidity is a challenge
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