Tokyo (Platts)--11Dec2012/611 am EST/1111 GMT

Japan's imports of liquefied petroleum gas from the US could rise to account for 10-20% of the country's total LPG imports, as it braces itself for higher demand for city gas supplies, Japan LPGas Association Chairman Jun Matsuzawa said Tuesday.

LPG purchases from the US now make up just 1.1% of Japan's total imports, which in fiscal 2011-2012 (April-March) came to 12.63 million mt.

Matsuzawa declined to elaborate on the timing of the increase because Japan is still unclear about the time lines for US supply capacities.

"Given increasing purchases of US-produced LPG by China, South Korea, and South American countries, we are still uncertain about Japan's actual purchase volumes," Matsuzawa told a news briefing in Tokyo.

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"However, if the US has an export capacity of around 10 million mt/year [of LPG], Japan should be seen as a stable buyer with a payment credibility and a trusted trade partner [of the US], so that we estimate the purchase volume to be about 20%."

The Japan LPGas Association expects to see a hike in LPG supplies from the US as a result of increasing production of shale-gas based LPG in the country, coupled with expected expansion at the Panama Canal in early 2015.

The canal expansion would reduce the freight costs of Japanese LPG imports from the US as it would allow buyers to load LPG in 45,000 mt VLGCs and cut voyage days to 22 from around 40-45 days currently, going around the Cape of Good Hope in Africa.

BLENDING DEMAND SEEN RISING

Matsuzawa said LPG demand for city gas supplies in Japan is expected to rise by 20-30% from current levels for blending into lean gas-based LNG for gas utilities.

Currently, Japan's LPG demand for city gas supplies is about 1 million mt/year, and it is expected to rise to around 1.2 million mt/year in fiscal 2012-13, the association said.

City gas utilities typically blend LPG into regasified lean gas to increase calories for city gas supplies. Industry sources said that approximately 200,000 mt/year of LPG is currently mixed into LNG.

Matsuzawa's comments came at a time when Japan is expected to hike its imports of lean gas-based LNG from North America at Henry Hub-linked gas prices in a bid to lower its increasing costs of LNG, most of which is linked to more costly oil-price indexation. Henry Hub prices are currently well below oil-linked LNG prices.

The country recorded its first annual trade deficit in 31 years in 2011, attributed in part to the fact that it imported a record 78.5 million mt/year of LNG at relatively high prices, in part to make up for lost nuclear output after the Fukushima nuclear disaster.

Japanese companies have secured options to import up to 15 million mt/year of LNG from North America, which could start from as early as 2016, although formal contracts are yet to be finalized, the Japanese government has said.

The possible 15 million mt/year LNG imports from North America would account for roughly 20% of the country's current import volumes.

However, Japan's actual LNG imports particularly from the US are subject to approvals from the US Department of Energy to allow LNG exports to non-free trade agreement countries like Japan.

The DOE has approved a number of applications to export LNG to countries with which the US has a FTA, but has only approved Cheniere Energy's Sabine Pass project in Louisiana for export to non-FTA countries, including Japan.

Market sources said the higher demand for LPG would require Japan to widen its supply sources and not limit itself to the Middle East, where Saudi Arabian LPG exports are limited by domestic petrochemical demand and supplies from Iran are curbed by concerns over Western sanctions.

In the fiscal year ended March 31, Japan imported 11.012 million mt of LPG from the Middle East, accounting for 87% of total LPG imports, association data showed.

Earlier Tuesday, Japan's Nikkei newspaper reported that the country's top LPG importer, Astomos Energy Corp, aims to increase its purchases from the US to 2 million mt/year by around 2015, which would be about 15% of the country's current LPG imports. An Astomos Energy spokesman denied the Nikkei report on the company's planned hike in LPG imports from the US with the reported time line.

Astomos Energy had said in October it would purchase 530,000 mt/year of US-produced LPG from Enterprise from 2015, which accounts for around 5% of Japan's annual import volumes.

The deal is three times above its existing contract volumes, in which Astomos buys three to four 44,000 mt cargoes each year from Enterprise, which began in 2008, market sources had said.

In July, Japan's second-largest LPG supplier Eneos Globe agreed with Enterprise Products Partners to import up to 200,000 mt of refrigerated LPG from 2014, and was considering increasing volumes.

CONTINGENCY PLANS

Asked to comment on a possible Iran crisis as a result of the deteriorating geopolitical situation and its impact on energy supplies passing through the Strait of Hormuz, Matsuzawa said Japan did not expect to see any impact on its LPG supplies.

"We should not be panicking on LPG supplies because we should be able to release strategic stocks in cooperation with the government in the event of supply disruptions," Matsuzawa said.

Japan won't have imported any LPG from Iran in the current fiscal year ending March 31, 2013, he added.

Currently, Japan has around 3 million mt of LPG, or 100 days' worth of import volumes in its strategic stocks, where the country holds 1.5 million mt, and the private sector holds the remaining balance, according to the Japanese LPG association.

--Takeo Kumagai, takeo_kumagai@platts.com
--Ramthan Hussain, ramthan_hussain@platts.com
--Edited by James Leech, james_leech@platts.com

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