INTERVIEW: Japex To Up LNG Imports, Exploration Investment

TOKYO -- Japan Petroleum Exploration Co. (1622.TO) is seeking to raise annual liquefied natural gas imports by a third and spend Y50 billion ($527 million) on exploring for new reserves in Japan, Japex president Osamu Watanabe said Wednesday.

Japex is basing its plans through 2013 on the belief that Japanese consumers will continue to shift to cleaner-burning natural gas, despite the decline in national energy consumption accelerating recently on the economic slowdon.

Watanabe said Japex was in advanced negotiations with Malaysia's national oil company, Petroliam Nasional Bhd., over increasing its LNG imports beyond the current level of 360,000 metric tons a year.

"We are in talks with Petronas. We are trying to buy 120,000 metric tons more LNG annually from them...The talks are close to a deal," Watanabe said.

Watanabe, who became president in late June, said the company's exploration spending in Japan through 2013 would be aimed at both undrilled prospects and existing oil or gas fields.

Japan is the world's second-largest importer of crude oil, and is a major consumer of coal and LNG, because it has few resources of its own.

There is some production of natural gas around the northernmost island of Hokkaido and the northwestern coast of the main island, but it barely puts a dent in overall demand for the fuel.

As of March this year, Japex had 19 billion cubic meters of proven gas reserves in Japan.

Its domestically produced natural gas is blended with imports, enabling Japex to sell the mixture at competitive prices due to much lower royalties and delivery costs than imports.

The LNG is regasified at Japex's LNG receiving terminal in Niigata prefecture in northwestern Japan. The company distributes the gas by tank rollies and pipelines to a few major cities where it is sold.

   Supply Bottleneck 

The domestic market for gas has tightened considerably since 2005 when Japanese factories and power producers began to shift away from oil in significant numbers because of skyrocketing prices and rising concerns over global warming.

This partly explained why Japan's crude oil imports fell 3.7% to 4.13 million barrels a day in the 2006-2007 period, while its LNG imports rose 15.2% to 66.8 million tons in the same period, according to the Ministry of Finance.

All of Japan's natural gas imports are in the form of LNG, due to the absence of pipelines linking the country to overseas gas fields.

But a growing dependence on natural gas has increased the exposure of Japanese consumers to volatility in global gas markets, particularly as regional rivals in Asia hunt for LNG cargoes and push up prices.

This year, Japan's natural gas import prices have risen to reach almost parity with prices of crude oil on a per-calorie basis.

Despite this, Watanabe said the trend towards cleaner burning fuels has continued unabated.

"We are asking some of our (prospective) customers to wait before switching (to natural gas) so that we increase supply," Watanabe said, explaining why Japex was hiking LNG imports and spending more on exploration.

   Regional Competition 

Despite the ongoing global economic slowdown, Watanabe said LNG demand hasn't shrunk noticeably and prices have held up as a result.

Tuesday, the China unit of Royal Dutch Shell Plc (RDSB) said it has signed a sale-and-purchase agreement to deliver up to 2 million tons of LNG to PetroChina Co. (PTR) annually for 20 years.

French oil major Total SA (TOT) said Wednesday that its talks with China National Offshore Oil Corp. over a final sale-and-purchase agreement for LNG are at "an advanced stage".

Total signed a heads of agreement with state-owned Cnooc in June for deliveries of up to 1 million tons annually for 15 years from 2010.

Watanabe said Japex's investment in exploring and developing overseas energy blocks in its portfolio, including in Libya and Indonesia, will reach Y110 billion through 2013.

The company aims to double its overall energy reserves to 350 million barrels of crude oil equivalent in the five-year period, he added.

-By Mari Iwata, Dow Jones Newswires; 813-5255-2929; mari.iwata@dowjones.com