Japan, the world’s largest LNG importing country, is forecast to have a strong demand for LNG during the period 2015 to 2020, thereby driving growth opportunities for various enterprises engaged in engineering, metals, equipment, construction, services and trading.
As the country becomes more dependent on LNG, the domestic LNG industry is poised to grow and also seek out global expansion opportunities.
Japan fostered the growth of the LNG industry in Asia by being the anchor market for exports from Brunei, Indonesia and Malaysia in the 1970s. It has relied on a diverse portfolio of nations for LNG while heavily banking on Southeast Asia to meet its requirements. Of late, Australia, Qatar and Russia are supplying up to 50% of Japan’s imports, overtaking the Southeast Asian suppliers. Apart from these, Papua New Guinea and the US will be the other important sources for Japan’s LNG supplies in the coming years.
High dependence on LNG
Japan has to import most of its natural gas in the form of LNG. Electric utilities Tokyo Electric, Chubu Electric, Kansai Electric, and city gas distribution companies, Tokyo Gas, Osaka Gas and Toho Gas, are among the country’s largest LNG importers.
Japan has gas networks developed specifically for a service area. The city gas suppliers deliver gas to customers through service area dedicated pipelines. With a view to avoiding duplication of facilities, a monopolistic market situation has been created in the city gas supply areas. These markets are regulated to take care of the interests of small volume consumers. The market is deregulated for consumers whose annual contracted volumes exceed 100 000 m3.
Electric utilities account for 65% of the LNG imported into the country.
Japan imported 87.5 million t of LNG in 2013 to meet power generation and city gas needs. With nuclear power facilities shut down, the power generation segment has been heavily dependent on natural gas and coal for the past three years. Around 65% of the total demand for LNG is from the power generation sector when nuclear facilities are offline. The share of LNG in the power generation fuel mix jumped from 29% in 2010 to 41% in 2011 to compensate for the loss of nuclear power. The city gas supplies cater to industrial, commercial and residential segments.
Gas demand from the power generation segment will decrease as nuclear power is expected to make a very slow comeback in the power generation fuel mix from Q4 2014. However, plans to increase the installed gas power generation capacity to approximately 80 GW by 2020 from the current level of 65 GW is expected to drive up the gas demand.
Figure 1. Japanese gas demand by end user segments, 2013 (Frost & Sullivan estimates).
Base case scenario for LNG imports
Frost & Sullivan’s base case scenario forecasts project that Japan will need to import 88.1 million t of LNG by 2020. The demand for LNG is expected to show a slight decline up to 2016 before taking an upward trend up to 2020.
The base case scenario projects an increasing demand trend considering the following assumptions:
- Slow growth in electricity demand.
- Gradual re-entry of nuclear power into the grid from 2014.
- Progressive decommissioning of nuclear power plants older than 40 years.
- Gas power generation installed capacity addition.
- Increase in city gas demand.
- City gas demand sees increased demand from industrial and commercial segments but a decline from the residential segment.
Increasing LNG imports have taken the fuel’s prices to new highs, creating trade deficits for the world’s third largest economy. The country’s strategy focus is towards making LNG imports secure and at the same time cheaper.
The electric utilities and city gas distribution companies import LNG into Japan, sourcing it from long-term contracts and spot purchases. Up until 2010, spot purchases were less than 5% of the total LNG procured. In the last three years, spot purchases have increased to over 20% of the total procurement.
Figure 2. LNG imports: Frost & Sullivan’s base case scenario (Frost & Sullivan forecast. Historical data compiled by Frost & Sullivan from various industry sources).
Written by Subbu Bettadapura, Frost & Sullivan.
Edited by Ted Monroe
Part Two of this article will be available shortly, and you can find the full version of the article in the September issue of LNG Industry.
Read the article online at: https://www.lngindustry.com/liquid-natural-gas/19092014/subbu-bettadapura-provides-an-outlook-for-the-japanese-lng-industry/