A prolonged U.S.-Israeli war with Iran could push buyers to non-Middle East suppliers such as the U.S. and Canada, said a senior executive at Japan’s biggest power generator JERA, as the conflict spreads to energy infrastructure across the region.
“With 90 million metric tons from the Middle East absent from the global LNG market, the longer this persists, the greater the impact,” Senior Managing Executive Officer Ryosuke Tsugaru said in an interview on Wednesday.
Later on Wednesday, Qatar, the world’s second-largest LNG exporter, said Iranian missiles had hit Ras Laffan, the site of its core LNG processing operations, causing “extensive damage”.
JERA on Thursday declined to comment on the attack.
As the conflict continues, spot prices are likely to surge and volatility increase, while the crisis underscores regional risk and could spur sourcing or investment in projects elsewhere, Tsugaru said in the Wednesday interview.
Japan’s biggest LNG buyer handles roughly 35 million tons of the super-chilled fuel annually, of which around 27 million tons is used domestically.
About 5% of its shipments to Japan pass through the Strait of Hormuz, where the three-week-old war has disrupted shipping. The strait runs alongside Iran and carries around 20% of global fossil fuel supply.
Earlier this month, Qatar halted production at its 77 million ton-per-annum (mtpa) LNG plant and declared force majeure on shipments. The plant sits across the Persian Gulf from Iran which has targeted U.S. interests and energy infrastructure.
JERA in February signed a 27-year deal with QatarEnergy for 3 mtpa from the North Field South, the second phase of a massive expansion project. If the war drags on and work on the expansion stalls, deliveries to JERA could be delayed beyond their 2028 schedule, Tsugaru said.
“Our exposure to the Middle East is not significant… but we are considering additional spot purchases to address certain cargo shortfalls,” Tsugaru said, adding JERA has not received any emergency procurement requests from domestic utilities.
If the crisis is prolonged, JERA will track demand trends and buy spot cargo as needed to ensure stable supply, he said. Even so, JERA, a joint venture of Tokyo Electric Power and Chubu Electric Power, has no plans to amend its contract with QatarEnergy, he said.
NORTH AMERICA EXPANSION
Last year, JERA agreed to buy 5.5 mtpa of U.S. LNG from four projects starting around 2030 as well as U.S. natural gas assets for $1.5 billion. It has secured the LNG needed for the early 2030s and can hedge about 60% of expected U.S. volume – set to reach 10 million tons in the next decade – against price swings, Tsugaru said.
JERA does not aim to become a U.S. gas producer and is not pursuing additional upstream acquisitions for now, he said.
JERA also procures supply from LNG Canada, a Shell-led venture, and may consider sourcing more from an LNG Canada expansion project, Tsugaru said.
(Reporting by Yuka Obayashi and Katya Golubkova; Editing by Christopher Cushing)