Japan: LNG imports and nuclear restarts

The UK Foreign Office has published a report on developments in the Japanese LNG industry and the impact of nuclear restarts on the global LNG demand.

Highlights

In summary, the report highlights major decisions in Japan that look likely to affect global LNG markets:

1. Two Japanese utilities will partner to create the largest single global importer of LNG.
2. The Japanese government is using domestic gas reform and global exploration to try to reduce the country’s LNG bill.
3. The first two nuclear restarts in Japan have received political approval, with 4 – 6 possible restarts by mid 2015.

Reducing Japan’s LNG bill

In the first week of November, during the third global LNG Producer-Consumer Conference, TEPCO and Chubu Electric announced the establishment of a single company to combine their gas businesses. The new company will import 39 million tpa of LNG, becoming the world’s largest single LNG customer with 16% of global demand (more than five times that of the UK). Japan remains the largest importer of LNG with 37% of global demand. TEPCO and Chubu’s alliance is likely to expand into other energy areas beyond LNG.

Despite projections that global LNG supplies will double by 2020, Asian prices remain stubbornly high. Japan is particularly keen to reduce them, using the following methods:

• Accessing new supplies: notably US shale, but also resources in ‘deep, distant and difficult locations’ - the Arctic, Canada, Alaska, and Russia which are becoming more accessible with ice melts.
• Constructing a pipeline: a long-term goal yet to be clearly defined.
• Liberalising the gas market: this has already started and resulted in a number of new players entering the market including mobile phone giant Softbank.
• Establishing an Asia trading hub in Japan: the government have taken steps to improve price transparency and are encouraging more flexibility in contracts – e.g. to allow surplus to be sold on. An early Tokyo trading hub started in September this year and has 20 participants so far.

Nuclear restarts

All Japan’s 48 nuclear reactors have been idle for the last two years. However, the start of November saw political approval for the restart of two reactors at Sendai Nuclear Power Plant. Further technical and regulatory requirements are likely to take until at least February. Two further reactors could be granted initial safety approval soon, so up to 4 - 6 power stations could be running by the summer of 2015.

Japan’s nuclear restarts are likely to impact:

• Global LNG demand - theoretically, each restart displaces approximately 1 million tonnes of Japanese LNG demand although some will substitute oil rather than gas fired plants.
• Climate change – nuclear restarts could give Japan an extra 10% emissions reduction by 2030.
• Japan’s economy – this will receive a significant boost, both in terms of trade balance and the financial health of Japanese utilities. Each restart saves a US$ 750 million annual LNG bill.

Source: UK Foreign Office.

Adapted from press release by Katie Woodward

Read the article online at: https://www.lngindustry.com/liquid-natural-gas/24112014/uk-report-on-japan-lng-industry-1840/