INTERVIEW-Japan's Osaka Gas seeks U.S. shale gas stake

Tue Apr 15, 2014 11:38am BST

Quotes

   

* Osaka looking for shale gas stake to support Freeport LNG

* In talks with JBIC, other banks to finance Freeport investment

* Eyes upstream stakes in Canada, Africa, including Mozambique

By Osamu Tsukimori

TOKYO, April 15 (Reuters) - Osaka Gas Co is looking to buy a stake in at least one U.S. shale gas project to help supply fuel to the Freeport LNG project in Texas, a senior company official said on Tuesday.

Japanese gas and power utilities have been looking for ways to cut fuel costs after their liquefied natural gas (LNG) imports and payments rose to records last year due to the second complete shutdown of the country's nuclear reactors since the 2011 Fukushima disaster.

One strategy has been to sign up for new LNG supplies from the United States, which is expected to grow to be the third largest exporter of the super-chilled gas by the end of 2020.

Osaka Gas and Chubu Electric, for instance, have signed 20-year tolling agreements with Freeport LNG for 2.2 million tonnes of LNG a year each from the project's first liquefaction unit. They have also invested in the plant.

"We are not considering acquiring a gas stake to cover all volumes (for Freeport)," Motoyuki Hirabayashi, general manager of energy development, told Reuters in an interview.

"But we have received many offers from sellers wanting us to buy their gas stakes partly because Henry Hub prices have still not risen sharply."

Some U.S. companies have halted development of shale gas projects amid uncertainties over profits as benchmark Henry Hub prices have dwindled with the U.S. shale gas boom, opting instead to sell their stakes, Osaka Gas officials said.

Osaka Gas wants to acquire a stake in a U.S. shale gas development by the time the Freeport project starts operations sometime in 2017-2018, company officials said.

The officials declined to name any of the potential sellers but said the gas stake does not have to have a direct pipeline feed to the Freeport plant.

Having a stake in a U.S. gas field would help Osaka Gas hedge its fuel expenses by offsetting the feedstock costs when Henry Hub prices rise, the officials said.

Freeport last May received permission from the U.S. Energy Department to export LNG at a rate of more than 10 million tonnes per annum from its first two trains but has been waiting for a final decision from the Federal Energy Regulatory Commission, which assesses environmental impact.

Osaka Gas and Chubu Electric plan to invest about $600 million each for individual stakes of 25 percent in the liquefaction facility. The final investment decision is expected in the second half of 2014, and construction, which should take about four years, should begin soon after.

Osaka Gas is looking to secure project financing for its portion of the investment from Japan Bank for International Cooperation (JBIC) and Japanese megabanks among others, said Koichiro Age, senior general manager of Osaka Gas' Freeport Project Development Unit.

Osaka Gas, Japan's second-biggest city gas supplier behind Tokyo Gas, is also interested in procuring supplies from Africa, including Mozambique, Age said.

"We have never been involved in projects in Canada and Africa, and we're interested in both from the point of views of diversifying supplies," Age said.

"But we have to see if they can finalise the projects at attractive prices," he said.

Osaka Gas is also in talks on possible investments in gas fields in Canada, said Hirabayashi, the general manger of energy development.

"During the LNG offtake negotiations, the conversations could develop into possibly investing in an upstream stake or a liquefaction unit," Hirabayashi said. (Editing by Tom Hogue)

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