Comment: Mitsubishi’s role in the Donggi-Senoro project underlines the evolution of Japan’s trading houses in the LNG industry
The Indonesian Donggi-Senoro project this week followed Santos and BG Group to become the third LNG export project in as many months to take a final investment decision.
The wrangling between the government and the sponsors over Donggi-Senoro's domestic gas commitments has been one of the principal challenges that has threatened to sink the project. And it highlights the problems facing potential LNG export projects in developing countries such as Nigeria and Trinidad & Tobago, where there is strong competition from the domestic market.
But the sanctioning of the Mitsubishi-led project also underlines a noticeable evolution in the traditional role of the Japanese trading houses to developing closer relationships with other regional buyers in Asia outside Japan, while continuing to move further upstream and take the lead in liquefaction projects.
While some Japanese utilities continue to depend on Japan's main trading companies for their LNG procurement, most of the country's main LNG buyers have become more adept at sourcing their own spot and long-term supplies.
Moreover, recent long-term contracts signed by Japanese utilities with project developers contain a greater degree of flexibility and conditionality.
Chubu Electric's 1m tonne per annum supply contract with the Donggi-Senoro consortium, for example, gives it the option to divert the entire volume without destination restrictions.
In the face of such "competition" from Japanese utilities, some trading houses have established strong relationships with other regional buyers. The establishment of the KOGAS/Mitsubishi joint venture to develop Donggi-Senoro is one such relationship, and builds on a 2009 agreement in which the two companies agreed to jointly conduct feasibility studies on certain upstream and petrochemical projects in Russia, Indonesia and Venezuela.
The recent trend for Japanese utilities to take an equity stake in liquefaction projects in the Asia-Pacific region has also reinforced the role of the Japanese trading houses in securing equity interest in other LNG export schemes further afield.
Mitsubishi is partnering Shell in a floating liquefaction project in Iraq, while both Mitsui and Mitsubishi have been linked with other less prospective schemes in Venezuela and Nigeria.
Japan's trading houses have played an instrumental part in the vast majority of those LNG projects that have had a Japanese footprint over the past 30 years. On occasions, they have taken significant investment risks. Testament to this role in the expansion of the LNG industry was Mitsubishi and Mitsui's involvement in Russia's Sakhalin project and the trading houses' investments at the beginning of Indonesia's LNG development in the 1960s, as well as Qatar's in the 1980s.
Nevertheless, those investment risks have generally been taken under the umbrella of Japanese government support.
The state - initially through the Export-Import Bank of Japan, and then via its successor, the Japan Bank for International Cooperation (JBIC) - has contributed some form of financial support in every liquefaction project in which Japanese companies and trading houses have participated. The Donggi-Senoro project is no such exception, with the JBIC agreeing to partly finance the estimated $2.9bn project. BW
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