Japan Holds Off on US Gas Supplies

Japan Holds Off on US Gas SuppliesJapan Holds Off on US Gas Supplies

Japanese buyers of liquefied petroleum gas (LPG) are holding off on increasing term supplies from the United States following a plunge in oil prices that has made US LPG more expensive than Middle East imports, senior industry sources said on Tuesday, Reuters reported.

Japanese LPG buyers such as Astomos Energy Corp and Eneos Globe Corp have been aggressively boosting US LPG purchases to cut costs and reduce reliance on the Middle East. But with oil prices plunging to around $70 a barrel, the cost of Middle Eastern origins that make up about three quarters of Japan's total imports has fallen below US prices, linked to Mont Belvieu prices in Texas, senior industry officials familiar with the matter said.

Japanese firms would monitor relative pricing and reconsider increasing US LPG supplies at a later date, they said.

The development of US shale resources has led to a sharp increase in oil and gas production, turning it from a large energy importer into a net exporter of LPG. Japan boosted its imports of US LPG to about 1 million tons in the year ended March, some 30 times higher than the 2005 level and about 9 percent of total imports, as its looks to expand its sources of supply.

Some industry sources expect that US LPG could account for nearly 20 percent of total imports by 2017-2018. Japan is the world's top LPG buyer, importing a total 11.41 million tons in the year ended in March. Japanese buyers will keep the existing term LPG contracts from the United States that run for several years towards 2020, but will consider options such as delaying the delivery schedule or shipping to other countries, the sources added. U.S. LPG, sold on a free-on-board basis, is destination free.