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IEEFA: Prices, not politics, will shape US LNG flows to Japan going forward

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LNG Industry,


Following the first summit between Japanese Prime Minister, Ishiba Shigeru, and US President, Donald Trump, in early February 2025, both leaders announced an intention to increase “exports of US LNG to Japan in a mutually beneficial manner.” President Trump claimed that Japan would start importing US LNG “immediately” and in “record numbers.”

IEEFA: Prices, not politics, will shape US LNG flows to Japan going forward

However, these announcements mask important realities about the US-Japan LNG trading relationship that are cause for scepticism. First, recent political announcements have not been accompanied by commercial deals between private LNG buyers and sellers. Second, the economics of key US projects like Alaska LNG remain questionable, and Asian buyers have resisted signing onto the project for years. Third, Japan’s LNG demand has fallen sharply over the past decade, and the country is now reselling more LNG overseas than ever before.

Political statements cannot change the economic feasibility of Alaska LNG

President Trump stated that Japan would form a “joint venture” with the US to support the proposed Alaska LNG project near Anchorage – a US$44 billion facility that also involves the construction of an 800-mile pipeline from the North Slope. However, the Japan Gas Association notes that private companies, not political leaders, procure LNG. Japan’s investment in the project depends on whether private companies see a viable business case.

Yet, the Alaska LNG project has remained in the nascent stages of development for nearly two decades. To date, no buyers have finalised long-term purchase commitments from the facility. LNG export projects typically require 80% or more of their capacity to be covered by these contracts to secure financing.

Japan’s Mitsui Co. is reportedly evaluating the project due to its proximity to Asia but will only consider cost-competitive proposals. The project’s remote location and expensive construction costs for lengthy permafrost-resistant pipes make this unlikely, and potential buyers have expressed strong doubts about its economic feasibility.

When asked recently about the development, Mitsui’s Chief Financial Officer, Tetsuya Shigeta, replied: “We have nothing we can talk about now, including our policy.” Japan Petroleum Exploration (JAPEX) recently described Alaska LNG as an unrealistic investment proposition.

What about other US LNG export projects?

Other US projects could meet Japanese buyers’ feasibility criteria. However, Japan has not followed up on recent political announcements with tangible commercial agreements.

The most recent sales and purchase agreement between a Japanese and US company was signed in April 2023, when JERA agreed to buy 1 million tpy from Venture Global’s CP2 project. Japanese companies, Inpex and Itochu, also signed deals with US companies in late 2022/early 2023 to buy 1 million tpy each of LNG from the planned CP2 and Rio Grande LNG projects, respectively. All these deals are expected to begin in 2028, provided the projects are built according to schedule.

However, since building LNG export facilities takes roughly four years, neither may be completed during President Trump’s second term. Both the CP2 and Rio Grande LNG projects are facing legal delays. Furthermore, Venture Global is reportedly renegotiating its existing contracts with CP2 buyers, aiming to secure higher prices, which could further derail the project.

Why is Japan looking to buy more US LNG?

Japan’s draft strategic energy plan envisions the role of thermal energy (coal, LNG, among others) falling steeply over the next two decades – from nearly 70% of the power mix to between 30 – 40% by 2040. LNG demand may continue to fall from its peak in 2014, in accordance with climate targets and a large renewables buildout scenario.

However, the government is instructing Japanese companies to procure LNG volumes consistent with a scenario in which climate targets are not achieved, renewables deploy slowly, and electricity demand rises due to end-use electrification and higher consumption from data centres.

Given this uncertainty, the flexible nature typical of US LNG contracts may fit well with Japan’s strategy. Flexible contracts without destination restrictions allow cargo resales to other countries, which Japanese companies have become proficient in as the country’s LNG demand has fallen. In contrast, agreements with other countries like Qatar may come with destination restrictions that prevent resales.

Consequently, due to Japan’s falling LNG demand and need for flexible contracts, deals between Japanese and US companies would not necessarily guarantee increased US LNG inflows.

Will Japan replace its existing suppliers with US LNG?

Some believe that the US can double its exports to Japan and completely displace Russian imports. However, considerable uncertainties could challenge this.

Contracts with Russian suppliers are expiring, but US LNG will have to contend with numerous competitors. This includes Russia, as buyers may re-sign with Sakhalin-2 due to its proximity to Japan. Negotiations are ongoing for more Qatari LNG, but that will depend on the flexibility offered. US LNG only comprises 10% of current Japanese LNG imports because it is relatively expensive due mainly to longer shipping distances.

Several dynamics could exacerbate this disadvantage. Higher borrowing and input costs are increasing US liquefaction fees, prompting suppliers to renegotiate existing contracts at higher rates. Tariffs on China and steel will raise the costs of producing natural gas and constructing liquefaction terminals. Growth in gas exports and domestic demand for powering data centres could increase Henry Hub prices.

While President Trump promotes unleashing American energy, economic trends suggest that certain US projects may become less viable, potentially hindering a meaningful increase in LNG flows to Japan.

Read the article online at: https://www.lngindustry.com/special-reports/28022025/ieefa-prices-not-politics-will-shape-us-lng-flows-to-japan-going-forward/

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