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Friday, March 23, 2012

Re-thinking trade policy in an era of expensive energy

In an era of expensive energy, Japan's lack of natural resources and distance from markets (except China) are significant liabilities. Consider Morgan Stanley Ship Hauls Frozen Gas 14,500 Miles to Tokyo - Bloomberg:

"Japan’s gas-fired power plants are boosting output to compensate for nuclear reactors shuttered since last year’s earthquake, driving Asia-bound cargoes to a record. The U.S. has surplus natural gas extracted from shale rocks deep underground, and while it lacks a facility to liquefy that fuel for shipping, cargoes delivered to the country under longstanding contracts can be re-exported when overseas prices are higher.

“There’s a huge arbitrage,” Arctic analyst Erik Nikolai Stavseth said by phone yesterday. “When someone is willing to pay that much to move gas from A to B, it tells you demand is very strong.”"

Specifically, "One million British thermal units of LNG costs $17 in Japan and $2.62 on the U.S. Gulf Coast ."

At differentials that great, it's not inconceivable that the US could develop a trade surplus with Japan.