Fostering an LNG export project―Capitalizing on the Sumitomo Group's integrated strength
Diversified Natural Gas Producing Countries
Natural gas is a resource whose demand has been increasing worldwide recently, since burning natural gas for energy results in lower emissions of carbon dioxide (CO2) compared to burning other fossil fuels such as coal and oil for an equal amount of energy. Now that natural gas is produced in more countries and regions than before, including Australia, Russia, Southeast Asia, Africa, the Middle East and the United States, gas consumers can diversify their supply sources, and that helps those gas consumers secure a stable gas supply.
Liquefied natural gas (LNG) is produced by cooling natural gas to minus 162 degrees Celsius for easier transportation and storage. In the 1970s an LNG import facility was constructed in the state of Maryland, US. However, due to the so-called "The Shale Revolution" in the late 2000s, the US switched from being an importer of LNG to an exporter. Under such circumstances, Cove Point LNG ("CPL"), one of the group companies of Berkshire Hathaway Energy, a leading energy company, began to construct a plant to liquefy natural gas and export LNG to other countries.
Concluding a Terminal Service Agreement through a Subsidiary
Sumitomo Corporation Group concluded a terminal service agreement for the utilization of CPL's LNG facility in 2012 through Pacific Summit Energy, a 100% subsidiary of Sumitomo Corporation. Furthermore, through this subsidiary, Sumitomo Corporation established a joint venture company ST Cove Point with Tokyo Gas in 2014. Since then, the agreement was assigned to this newly founded joint venture. ST Cove Point was established to develop and implement a sustainable operation system for the export of LNG from the terminal.
This project commenced a commercial production in April 2018, and now 1.4 million tons per annum are shipped to Tokyo Gas and 0.8 million tons per annum to Kansai Electric Power.
One of the features of a terminal service agreement is outsourcing the liquefaction service to the terminal operator instead of simply purchasing the ready-made LNG. This transaction, called "tolling model," requires the tolling customer to have the ability to self-procure the natural gas which is to be liquefied at the terminal. In this project, Pacific Summit Energy is in charge of the natural gas procurement.
Integrated Corporate Strength Creates Value - Stable Supply of LNG
Pacific Summit Energy has been engaged in the natural gas trading business since 2004. It has a vast trading network across the US, which enables the company to procure natural gas at an optimal price from the US gas market. The procured gas is sold to ST Cove Point, and liquified by Cove Point LNG at their terminal, and finally, the produced LNG is shipped outside the US.
Another feature of the project is its flexibility in trading. The amount of LNG ST Cove Point exports from the terminal is approximately 2.3 million tons per annum. Thanks to the export authorization granted by the US Department of Energy, LNG can also be exported to Non-Free Trade Agreement Countries.
A successful implementation of such a flexible contract relies on Pacific Summit Energy and ST Cove Point making appropriate decisions and managing their operation according to the situation. Pacific Summit Energy procures natural gas, and ST Cove Point requests Cove Point LNG to liquefy natural gas and implements flexible LNG export operation trying to make the most of the value chain. This is how Sumitomo Corporation Group contributes to the stable supply of LNG through its integrated corporate strength.
A Resource that is Indispensable in Our Daily Lives
Natural gas, as power generation fuel and utility gas, is an indispensable resource for the stable supply of electricity and gas. However, in countries like Japan where there is almost no domestic natural gas available, it is inevitable to be dependent on LNG imports. The project aims to support everyone’s daily life in such countries by contributing to a stable LNG supply at an appropriate price.
The Sumitomo Corporation Group is committed to the stable operation of this project by cooperating with both domestic and international players, including US natural gas producers and LNG buyers. By doing so, the group ensures the stable LNG supply from the US to various energy users in Japan and around the world.
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