A week ago, Japan pulled the plug on the last unit of the Tomari nuclear plant, leaving the country without nuclear energy for the first time since May 1970. Just across the Pacific a few days earlier, Alaska approved a plan for a pipeline to move natural gas from the North Slope to the coast for liquefaction and export.
The two seemingly unrelated events mark the beginning of an emerging strategic energy partnership, built around the United States’ growing glut of natural gas, that could reduce its trade deficit with Japan and strengthen its bond with the world’s third-largest economy.
Just over a year after an earthquake and tsunami caused a meltdown at the Fukushima Daiichi nuclear plant, Japan is facing power shortages as it heads into the summer without the source of energy that had provided nearly 30 percent of the nation’s electricity. As the country works to make up for lost capacity, natural gas is the obvious choice.
Enter the United States. With the recent discoveries of vast shale deposits of natural gas around the country, energy companies are scrambling to build gas-export terminals nationwide. Because of its location, Alaska has emerged as the likeliest supplier to Japan.
For four decades, the state has been sending small quantities of liquified natural gas to Japan from a ConocoPhillips export facility on the Kenai Peninsula. The facility’s export license is good for another year of small-scale exports, but as interest grows in larger exports to the Asia-Pacific, Alaskan officials are looking to develop the rich natural-gas resources on the North Slope.
Most of the ConocoPhillips exports to Japan have come from the Cook Inlet basin, but production there has slowed, and much of that gas goes to fulfill the high winter demand in the local market. The bigger opportunity is in northern Alaska’s Prudhoe Bay and Thompson Point, which together contain an estimated 35 trillion cubic feet of proven gas reserves.
Alaska needs Japan as much as Japan needs natural gas. No pipeline transports gas from Alaska to the lower 48, and the economics—near-record-low prices for gas combined with the shale boom across the country—don’t support building one. In fact, the state recently directed pipeline builder TransCanada to focus on expanding an existing pipeline built for exports, diverting attention from an alternative that would have brought natural gas through Alberta, Canada, down to markets southward.
Meanwhile, profits are far higher in Asia than in Europe and the United States. Asian LNG prices hover around $14 to $16 per million British thermal units, while the U.S. surplus has brought domestic prices down to $2 to $3 per MBtu. This stark disparity means that no viable market for Alaska’s gas exists in the rest of the U.S., but the Japanese government is the perfect customer, because it badly needs the fuel and is willing to pay above the market price.
Although Tokyo is still evaluating its energy policy, public opinion remains largely opposed to nuclear power, and a permanently nuclear-free Japan remains highly possible, leaving the country more dependent on energy imports as a result.
That likely future has Japan’s government closely watching the debate in Washington about the impact of exports on domestic natural-gas prices, says Jane Nakano, a fellow in the energy and national-security program at the Center for Strategic and International Studies. Nakano adds that the Japanese are also following the administration’s licensing decisions for new export facilities and its moves to regulate hydraulic fracturing, the extraction process that has created the shale boom.
Sen. Lisa Murkowski, R-Alaska, the ranking member on the Senate Energy and Natural Resources Committee, met with Japanese Prime Minister Yoshihiko Noda during his visit to Washington in late April. “An LNG line from the North Slope could deliver long-term, stable energy supplies to Japan at a reasonable price,” Murkowski said.
She and others believe that Alaska could serve Japan’s needs while also ensuring that local customers don’t suffer. A pipeline from northern Alaska to export terminals in the south could have distribution points along the way to provide for the state’s energy needs, they say.
For the U.S., the benefits of exporting natural gas to Japan are also clear. Not only would it help reduce the $63 billion bilateral trade deficit, but an energy partnership could also have a strategic value as the U.S. pivots its foreign policy toward Asia.
And Washington may want to move quickly. Tokyo has also been weighing a pipeline from Russia, which holds the world’s largest natural-gas reserves, and expansion of its renewable-energy portfolio. But both options are problematic. Japan is wary about entering the fray of Russian pipeline politics that has been plaguing surrounding nations for decades. Expanding renewable energy, meanwhile, is a long-term and costly prospect, and it remains a less tangible resource than natural gas.
Bill Reinsch, president of the National Foreign Trade Council, said he is not sure that natural-gas exports will do much to alter the thorny U.S.-Japan trade relationship, citing U.S. companies’ limited access to Japanese markets. “It’s not a particularly open economy,” he said.
Reinsch noted, however, that if America shies away from natural-gas exports, it risks isolating itself like China has. Possessing more than 90 percent of the global rare-earth mineral supply, Beijing has kept a tight lid on exports, infuriating the rest of the world. “We would not want to end up like the Chinese on rare earths, trying to keep control of the commodity,” he said of America’s vast natural-gas resources. “I would hate to see us fall into the same trap.”
This article appears in the May 12, 2012 edition of National Journal Magazine.