Other Press Conferences

Other Press Conferences

January 2014 Federation of Electric Power Companies of Japan Press Conference with President Mizuno

January 24, 2014
Chubu Electric Power Co.,Inc.

  • Today I would like to discuss
  • The status of progress of the U.S. Freeport Project and Chubu Electric’s initiatives.

(Fuel procurement problems)

  • Since the shutdown of all units of the Hamaoka Nuclear Power Station, Chubu Electric has become more reliant on thermal power generation, and our expenditure on thermal fuels continues to increase.
  • As you are aware, in October last year, we were forced because of this to make the difficult decision to increase electricity tariffs from April 1 this year.
  • Our ratio of thermal power generation has always been high, making the stable procurement of fossil fuels at the lowest possible cost one of our most pressing management issues.
  • At the same time, it is considered that the fuel procurement environment will become increasingly severe due to factors including intensifying competition for resources with the expansion of energy demand in emerging nations.
  • Facing this situation, we are working to increase the stability, cost-effectiveness and flexibility of our fuel procurement.
  • Percentage-wise, LNG is the fuel we employ most in thermal power generation. Today I will be discussing the Freeport Project in the U.S., an opportunity for LNG procurement on which we have placed a particular focus.

(The significance of the Freeport Project)

  • We believe that the Freeport Project will significantly contribute to increases in stability, cost-effectiveness and flexibility.
  • First, LNG imports from the U.S. will represent a new source of LNG supply not just for Chubu Electric, but for Japan more generally, and this will contribute to increasing the overall stability of supply.
  • In addition, the Asian LNG market is mainly linked to crude oil prices. The introduction of a new indicator through linkage to U.S. gas prices will stimulate reform of the market, and, we believe, ultimately result in a reduction in the price of procuring gas.
  • Because there are none of the restrictions on where the LNG is received or on its final destination seen in standard LNG sales contracts in the case of LNG produced in the U.S., it will be a simple matter to adjust the quantities we procure in accordance with fluctuations in our supply and demand situation. This will increase flexibility.

(Outline of the Freeport Project)

  • The Freeport Project is a project to construct facilities necessary for liquefaction in an existing LNG receiving terminal in Texas, thus transforming it into an LNG export terminal.
  • Three liquefaction facilities (liquefaction trains) are scheduled to be constructed. In July 2012, Chubu Electric concluded a liquefaction contract with a subsidiary of Freeport LNG, obtaining rights, together with Osaka Gas, to the entire output of the first train, representing 4.4 million tons per year.
  • In order to obtain this U.S. LNG, we will be required to:
  • procure natural gas, the raw material, in the U.S. gas market;
  • transport the gas to the Freeport terminal via gas pipelines;
  • liquefy the gas in the newly constructed liquefaction train; and
  • transport the LNG to Japan by LNG container ship.

(Approval for export from the U.S. Department of Energy (DOE))

  • In order to export LNG produced by the project to Japan, it was necessary to obtain approval from the DOE for the export of LNG to a non-FTA country.
    The project obtained the necessary approval in May last year.

(Obtain approval for construction work from the FERC)

  • It is also necessary to obtain approval for construction work, including construction of the new liquefaction train, from the Federal Energy Regulatory Commission (FERC).
  • An environmental impact assessment is currently being conducted as a prerequisite for obtaining approval.
    Assessments of this type must conduct detailed studies to ensure that there are no negative impacts on water and air quality and the ecosystem, and therefore normally require a considerable amount of time.
  • The FERC announced a schedule for an environmental impact assessment early in the New Year (on January 6), advancing us significantly towards the receipt of approval for construction and the construction of the liquefaction train.
  • Based on this schedule, Freeport LNG is making preparations and arranging financing towards the commencement of construction work.
  • We concluded a construction contract in December last year, and we expect to commence construction in summer this year.
  • Because the construction of a liquefaction train normally takes around four years, we expect to be able to commence shipment of LNG in 2018.

(Procurement of natural gas as raw material)

  • Next, I will discuss the procurement of natural gas, our raw material.
  • Pipelines extend throughout the U.S., and conventional gas is distributed mixed with unconventional gas such as shale gas.
  • There are:
  • more than 6,000 natural gas producers;
  • more than 200 gas pipeline companies; and
  • numerous marketers acting as intermediaries for gas buyers and sellers in the country.
  • In terms of figures for LNG, this represents 500 million tons per year, or five to six times the size of the Japanese gas market. This is the scale of the market from which we will be procuring gas.
  • In the U.S., gas can be procured at the going market rate, but the price of gas fluctuates significantly depending on circumstances, and we considered that we would be able to obtain gas more economically through a combination of medium- to long-term contracts and spot procurement that enables us to use the market flexibly.
  • We are already proceeding in this direction, through the establishment of a company in Houston in October last year and the stationing of Chubu Electric staff there.

(Transportation of LNG)

  • Moving on, I will now discuss the transportation of LNG to Japan.
  • It is a great distance from Freeport to our LNG terminal – approximately 17,000 kilometers. A return trip takes approximately 50 days at sea.
  • Because of this, we want to try to reduce the cost of transportation of LNG by procuring and operating five high-performance LNG container ships using the latest technologies.
  • We are also seeking to realize further efficiency, reviewing the possibility of the joint operation of container ships with Osaka Gas.
  • As a result of the initiatives that I have discussed today, from 2018 shipments totaling 2.2 million tons of LNG per year will be successively produced in Freeport, be transported via the newly widened Panama Canal, cross the Pacific, and arrive at our receiving terminal.

(Conclusion: Towards reform of the Asian market)

  • Projects in which Japanese companies are deeply involved, including the Freeport Project, produce a total of approximately 15 million tons of LNG per year, corresponding to approximately 20% of Japan’s gas consumption.
    The products of these projects reach Japan and the rest of the Asian market from the U.S. basically simultaneously.
  • We expect that obtaining LNG from the U.S. will both contribute to the stable procurement of LNG by Japan and provide an opportunity for the reform of the Asian LNG market.
  • This concludes my remarks for today.

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