Japan, once one of the top liquefied natural gas (LNG) importers, is undergoing a rapid drop in demand, forcing gas and power utilities to resell excess fuel abroad, according to a report by the Institute for Energy Economics and Financial Analysis (IEEFA) on Monday.
Japan鈥檚 largest utilities, including JERA, Tokyo Gas, Osaka Gas and Kansai Electric, are likely to face an over-contracted position of roughly 11 million tonnes per annum (mtpa) for the remainder of the decade, said the US-based think tank in its latest report titled, Japan's Largest LNG Buyers Have a Surplus Problem.
Struggling with a saturated domestic market, Japanese utilities are cultivating LNG demand abroad by investing in midstream and downstream gas infrastructure, such as regasification terminals and LNG-fired power plants, particularly in South and Southeast Asia.
Government policies are fueling Japanese companies to trade higher LNG volumes with emerging markets, according to the report.
Commenting on the report, Sam Reynolds, the co-author and LNG research lead at IEEFA, said: 鈥淭he importance of Japan鈥檚 shift into LNG resales and marketing should not be underestimated.鈥�
鈥淩ather than absorbing more volumes from the global market, Japanese companies may increasingly find themselves in direct competition with global suppliers for potential customers in emerging markets,鈥� Reynolds added.
According to figures from the Japan Oil, Gas and Metals National Corporation (JOGMEC), LNG sales by Japanese companies to third countries surged from 14.97 million tonnes (mt) in the financial year 2018 to over 38 mt in the financial year 2021. Although Japanese companies saw a decline in domestic sales, their overall LNG trade expanded.
The report puts the reason for the fall in Japan鈥檚 domestic LNG demand as rising generation from nuclear and renewables, long-term energy and climate targets and demographic shifts.
As the government鈥檚 climate and energy plans expect LNG-fired power generation to more than halve by 2030, the IEEFA estimates that the country鈥檚 LNG demand could fall between 25.7 and 31.6 mtpa, or roughly one-third of 2019 levels, if electricity generation targets are achieved. According to the report, LNG imports have already fallen by 22 mtpa since 2014.
The report鈥檚 co-author and the IEEFA鈥檚 LNG specialist, Christopher Doleman, said: 鈥淎s domestic demand falls faster than LNG purchase commitments, Japanese utilities will face an important choice.鈥�
鈥淓ither they can resell flexible cargoes abroad or exercise contractual volume flexibilities and cancellation rights, which may incur additional costs,鈥� Doleman added.
Aiming to become a global LNG hub, Japan's Ministry of Economy, Trade and Industry has set an ambitious target of 100 mtpa by 2030. This strategy, backed by Japan鈥檚 Asia Zero Emission Community initiative promoting Japan's energy mix across Asia, suggests Japanese companies will leverage their expertise to secure a dominant role in LNG transactions, even as domestic demand wanes.
Although LNG exporters continue to justify new liquefaction investments under the false impression that Japan will continue to buy more volumes, Reynolds argues that the opposite is true and that Japanese buyers may increasingly compete for potential customers in prospective markets.
According to Doleman, as demand from Japan and other key markets falls, prices are widely expected to fall.
鈥淟NG marketers, including Japanese utilities, could see margins on LNG resales collapse,鈥� he said.
This is also echoed in the report, which says that Japanese LNG marketers could face a unique set of challenges amid a looming global glut.
By Handan Kazanci
Anadolu Agency
energy@aa.com.tr