Approximately 15% of Japan's primary energy is natural gas.
At Mitsubishi Corporation, we have been engaged in natural gas operations for around 40 years,
including liquefied natural gas, or LNG. We consider ourselves pioneers in the LNG business,
and continue to take on new challenges in this burgeoning domain.
The following are a few examples of our LNG projects.
Mitsubishi Corporation's LNG business began in 1969, when it was first introduced to Japan from Alaska. We discussed importing LNG with Japan's electrical utilities and gas companies, established ourselves as an agent for these imports, and arranged for the LNG carriers that would be used to transport the gas.
The world's first use of LNG actually came a few years earlier, when British gas companies imported it from Algeria in 1964. Until then, the natural gas business was mainly local production for local consumption; after being extracted from the gas fields it was delivered via pipeline to power plants in neighboring countries. At the time it was difficult to lay pipelines on the ocean floor, which effectively ruled out importing natural gas this way to island countries like Britain. Due to worsening environmental problems, however, there was growing pressure in Britain to reduce its reliance on coal. The solution was to liquefy the gas by cooling it to minus 162 degrees, thereby making it possible to deliver it by specially-designed cryogenic ships (LNG carriers).
Air pollution and other environmental damage caused by Japan's post-war economic development had a broad impact on society. Then there were the two successive oil shocks in the 1970s, which raised concerns in Japan that the oil supply would run out. Natural gas offered an attractive alternative to oil and coal, considering its high heating value and the fact that when burned it produces relatively low CO2 emissions compared to these other fuels. At first the higher cost was a hurdle, but once this was overcome Japan was able to begin importing LNG.
There are many facets to our LNG business at Mitsubishi Corporation. By effectively leveraging a network of more than 200 bases of operations in some 80 countries worldwide, we are able to invest actively in LNG projects. Our businesses encompass everything from the liquefaction equipment used to produce the LNG and the upstream operations of gas-field development, to frontlines operations like ownership and operation of the LNG carriers. Our functions in this field continue to evolve.
At Mitsubishi Corporation we call this a "value chain". By gaining insight into the many frontlines operations of the LNG business, we can pick up on overall market trends and the needs of our many customers. The accumulated know-how and expertise can also help us to develop new businesses. For 40 years we have been adding links to this value chain, and by doing so helping to procure a stable supply of LNG for Japan.
Mitsubishi Corporation's first investment in LNG development was the Brunei LNG Project, which began production in 1972. It was an enormous investment far exceeding our company's capital at the time. Such bold decision was brought on by the conviction of those involved who knew the importance of broadening the company's energy portfolio that heavily relied on oil. Environmental problems and energy security were major issues in Japan at the time. Mitsubishi Corporation went forward with the investment, confident that a stable supply of this clean energy source would play an indispensible role in Japan's future.
Furthermore, Brunei LNG teamed us with the Royal/Dutch Shell Group (Shell), one of the world's leading oil majors. The strong, trust-based relationship we built with Shell and the know-how and insight we gained through this project have helped us to significantly lengthen our LNG value chain.
The Brunei project would lead to other large-scale ventures, including our Malaysia, Australia, Oman, Sakhalin, and Tangguh operations. From development to sales, the links in Mitsubishi Corporation's LNG value chain cover every process and every stage of the business.
Shale Gas Development Project /
Gas Treatment Facility [Canada]
In September 2010, Mitsubishi Corporation agreed to invest through one of its subsidiaries in a shale gas development project owned by major Canadian oil and natural gas producer Penn West Energy Trust (PWE). This is our first venture into the shale gas business. Exploration will take place at the Cordova Embayment in northeastern British Columbia, where there are believed to be huge shale gas reserves. The estimated yield from the Cordova Embayment greatly exceeds Japan's annual demand for natural gas. Shale gas is a form of unconventional natural gas found in shale, a fine, sedimentary rock composed of clay and small amounts of other minerals. It had been known to exist for some time, but difficulties in drilling and extracting the gas made it largely unprofitable. Recently though, technological advances such as hydraulic fracturing and horizontal drilling have greatly increased the economic feasibility of shale gas and interest has boomed. Shale gas reserves can be found in many regions throughout the world, including North America, Asia, and Europe. Huge amounts are already being extracted in North America, and if the same proves possible in China and Europe, we may see some dramatic changes to traditional policies on energy security.
Balancing Global LNG Supply & Demand
Initially the LNG business was based on long-term contracts with buyers in the Far East (South East Asia), but with the burgeoning global demand for natural gas, and birth of markets in Europe, the US, and emerging economies, the LNG market is undergoing steady globalization and commoditization. Opportunities for spot trading are rapidly increasing. The market environment is evolving, with certain states gaining greater recognition as gas-producing countries, and new players from a broad range of industries coming onto the scene. At Mitsubishi Corporation we are responding to these changes. Assuming a leading role in LNG businesses, we are bringing the various, global players together and procuring or supplying the gas. In this fashion, we are refining our functions to help balance the global supply and demand.
Mitsubishi Corporation's annual equity production of LNG has risen to approximately seven million tons. This makes us the world's fifth-largest equity producer, after Shell, ExxonMobil, BP, and Total.
By 2050 the world's population will have swelled to more than nine billion. What impact will the LNG business have? Faced with environmental problems and apprehensions fueled by the oil shocks, our predecessors at Mitsubishi Corporation were courageous in starting this business – at the time, a completely new challenge for our company. Our aim is to continue this challenge, considering not only Japan's energy policy, but those in all South East Asian countries where demand for LNG is expected to grow. We will expand our operations to enable shipments of LNG from all over the world to those countries and regions that need it most; and we will create new LNG channels that will help balance global supply and demand.
Contents Produced in Cooperation with Nikkei Business Online Special / Cross Architects, Inc.