* Japan trading houses to push on with N.America shale
* Say confident in sector's long-term prospects
* Japan utilities looking to diversify fuel sources in wake
By James Topham
TOKYO, May 8 Japanese trading houses say they
will push on with investments in North American shale oil and
gas fields, despite writedowns in the sector on low gas prices
and reduced reserve estimates.
The comments from executives at Mitsubishi Corp,
Mitsui & Co, Itochu Corp and other trading
houses are a vote of confidence in the long-term outlook for
unconventional drilling in the United States and Canada, after
they saw more than $600 million in writedowns over the last two
They also come as the appeal of North American shale has
been dented by discoveries in other countries and the
possibility that transport costs could rise due to new rates in
the Panama Canal.
"(North American shale) is very attractive," Mitsubishi
President Ken Kobayashi said following a results briefing on
"There is an enormous infrastructure and market on top of
the gas resources in the United States ... And Canada, with its
access to the Atlantic Ocean, could also be a stable supply
source compared to say Russia or the Middle East."
Utilities in Japan, which are supplied by the trading
houses, have been looking to North American shale gas to
diversify their fuel sources in the wake of the Fukushima
nuclear disaster in 2011.
They also hope to use shale as a bargaining chip to get
better prices from oil and gas sellers in the Middle East,
Australia and Southeast Asia.
But Itochu last month marked down its investment in Samson
Resources by 29 billion yen ($285 million) after the U.S. oil
and gas producer re-evaluated some unproven gas and oil
That came on top of a 33 billion yen writedown recorded in
2013 on a company that has stakes in shale gas fields in several
Marubeni Corp also took so-called impairment
charges in the business year that ended March 2013 after it
decided to sell rights it had in the Niobrara shale project in
the western United States.
"Trading houses have been trying to ride the 'shale
revolution' through a wide variety of types of investment, so it
is hard to see them looking to exit the area anytime soon," said
Akio Shibata, president of the Natural Resource Research
Institute, and a former Marubeni official.
Japan's major trading houses, which also include Sumitomo
Corp, are key players in global commodity markets.
They handle a large proportion of Japan's imports of
liquefied natural gas (LNG), which account for about a third of
Earnings results released this week showed Mitsui's net
income rising around 40 percent to 420 billion yen for the year
that ended in March, led by a 20 percent gain in its energy
segment, while Mitsubishi's annual net income rose about 25
percent to 445 billion yen.
A number of global oil companies, including BP and
Shell, have also struggled after making investments in
U.S. shale which have left them exposed to depressed gas prices,
dragging on their profits.
BP last month wrote off over $500 million related to its
decision not to proceed with a shale project in the Utica basin.
Surging production of shale gas from hydraulic fracturing
-the process of injecting water and chemicals at high pressure
into underground rock formations to push out gas - has driven
U.S. gas prices to just under $5 per million British
thermal units (mmBtu) from as high as more than $15 mmBtu in
But Japanese trading houses are also looking to take
advantage of the anticipated expansion in U.S. industrial
production and the larger economy that the shale boom is
expected to bring.
"As shale production levels expand, there is the potential
that shale-focused chemical goods, power production and pipeline
sectors, midstream and downstream areas will expand with it,"
Mitsui President Masami Iijima said at a briefing on Wednesday.
($1 = 101.7150 Japanese Yen)
(Editing by Aaron Sheldrick and Joseph Radford)