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Jogmec to guarantee 75% of loans to LNG projects that lower Japan's import costs

Tokyo (Platts)--21 Jun 2013 801 am EDT/1201 GMT


The state-owned Japan Oil, Gas and Metals National Corporation hasdecided this week to provide guarantees of up to 75% of bank loans to new LNGprojects that are deemed to help reduce Japan's import costs for the fuel, aJogmec official said Friday.

Jogmec's initiative -- the first of its kind undertaken by thegovernment agency -- follows a June 14 cabinet decision that included acommitment to advance efforts for realizing LNG imports from North America aspart of the government's action plan approved in April to cut Japan's fossilfuels procurement costs, the official said.

The government's action plan includes coordinated support from itsagencies, including Jogmec, the Nippon Export and Investment Insurance andthe Japan Bank for International Cooperation, to shale gas projects in NorthAmerica and LNG projects to reduce the country's LNG procurement bill.

The Ministry of Economy, Trade and Industry said then that it wouldconsider launching through Jogmec a Yen 1 trillion ($10 billion) fund toprovide loan guarantees to LNG projects that will help reduce Japan's LNGimport costs.

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The Jogmec official did not give any details on the size of the fundFriday.

In order to be considered for Jogmec's loan guarantee program, Japanesecompanies must clear certain conditions, including that LNG supplies undersales and purchase agreements from their projects demonstrate a certainstandard reduction rate in price compared with Japan's average LNG importcosts over January-December in the previous year.

Projects that supply less than 1 million mt/year of LNG to Japan shouldbe able to demonstrate a 20% standard reduction rate to Japan's average LNGimport price in the previous year while projects that supply more than 6million mt/year of LNG to Japan would only need to show a 10% standardreduction rate to Japan's average LNG import price in the previous year.

LNG supplies under SPAs from the project must also have "internationallyrecognized gas price benchmarks" in their price formulas, said the official,adding that a hybrid formula with oil and gas benchmarks would be eligible tobe considered for the program.

Jogmec's initiative comes at a time when Japan has been stepping upefforts to cut its LNG import costs, with domestic power and gas utilitiesalready expressing their intention to introduce new gas pricing mechanisms.

Japan's rising LNG import costs contributed to the country recording itsfirst trade deficit in 31 years in 2011, and a record-high trade deficit Yen6.93 trillion in 2012.

Japan imported a record 87.3 million mt of LNG in 2012, up 11% year onyear. The country's LNG imports last year cost an average $864.07/mt($16.60/MMBtu), up 13% from 2011.

Japan buys LNG at prices that are linked to crude oil. As a result,rising crude oil prices in recent years have pushed up LNG costs, prompting anumber of Japanese power and gas utilities to look at imports from the US atgas-linked prices. US Henry Hub natural gas prices hit 10-year lows last yearand are currently at a fraction of oil prices.

--Takeo Kumagai, takeo.kumagai@platts.com
--Edited by Alisdair Bowles, alisdair.bowles@platts.com

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