Shell in US-Japan gas export deal: report

Export ambitions of Australia's rapidly growing gas sector have taken another hit in a matter of days, with reports from the US that Shell has won approval to export gas to Japan, which does not have a Free Trade Agreement with the US.

The Washington-datelined report, in the Nihon Keizai newspaper, says Shell intends to export as much as 800,000 tonnes annually of liquified natural gas to Tokyo Electric Power Co.

This comes a matter of days after both the Canadian government and the US Department of Energy gave approvals for export gas projects in British Columbia and Texas, respectively.

North Asia is the largest importer of gas, globally, and it has become increasingly aggressive in seeking to force gas prices lower.

Typically, the gas price is fixed to the oil price. In the early days of the gas export industry, the Asian importers, primarily electricity and gas utilities, were willing to pay a premium in light of the high fixed cost of building gas liquifaction plants, while also entering into long-term, usually 20-year, contracts.

However a small but growing part of the global gas trade is now being traded in the spot market, which has opened the way for lower prices.

Under US legislation, gas can only be exported to countries that have entered into free trade agreements with the US, with the US to lift this ban from as soon as March, according to the report.

Japan's utilities have been pushing hard to expand gas imports since the meltown at the Fukushima nuclear complex in April, 2011. The government is committed to reducing the role of nuclear energy in the future, although by how much is open to doubt.

According to the Nihon Keizai report, Tokyo Electric will buy the gas from Shell via Japanese trading houses Mitsubishi Corp and Mitsui Co.

Shell, Mitsubishi and Mitsui are large shareholders in Australia's north-west shelf project.

Late last year, the US Department of Energy said that boosting gas exports from the US would be beneficial, although the manufacturing sector is concerned it will push up domestic gas prices.

Shell is seeking to develop a 2.5 million tonne a year export gas project at Galveston in the gulf of Mexico, with a planned 2017 start-up. The project plans to convert a gas import facility to export gas.

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