Japan’s quest for a sustained energy balance

Mike Rhodes's picture
Mike Rhodes, Managing Editor, Gulf Publishing Company
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Asia consumes 75% of the world’s liquefied natural gas (LNG), and Japan and South Korea have long dominated the LNG import market. However, top Asian LNG importer Japan is approaching a ceiling on its ability to accept more LNG imports with respect to its gas-fired power plant capacity.

Japan announced in mid-2015 that it intends for nuclear power to account for as much as 22% of its energy needs by 2030. The remainder of the mix includes gas (27%), coal (26%), renewables (22%) and oil (3%). Prior to the March 2011 Fukushima nuclear disaster, nuclear power made up roughly 30% of Japan’s total energy requirement. This greater-than-anticipated reliance on nuclear power will impact global LNG trading patterns, as exporters to Japan will need to find alternative outlets for some of their product.

Japan imported 89 MMt of LNG in 2014, a record level and a slight increase from 2013. Although overall LNG imports to Asia increased in 2014 to a record high of 182 MMt, competition for spot cargoes decreased, leading to a decrease in spot prices. LNG suppliers have been put in a tough spot as demand from the world's top importers of the past few decades, Japan and South Korea, has declined due to slowing economies, more efficient use of power, and greater use of coal and renewables.

In the calendar year ending March 2016, Japan’s LNG imports fell 6.2% to 83.6 MMt, marking the first drop in six years as some nuclear reactors restarted. This decline was also the first since the 2011 Fukushima nuclear disaster, which drove purchases to record levels.

Thermal coal imports rose 1.7% in 2015/2016 to 112.1 MMt, while crude imports climbed 2.9% to 3.42 MMbpd. Japan, the world's fourth-biggest crude buyer, imported approximately 4.17 MMbpd of crude oil in March, an increase of 15.9%, marking the second straight month of gains. During that time, the country’s LNG imports totaled 8.15 MMt, up 0.1% from a year earlier and marking the first year-on-year rise in seven months. Imports of thermal coal for power generation declined 3% in March to 9.203 MMt.

In mid-2015, Japan restarted its first nuclear reactor since the Fukushima meltdown, Kyushu Electric’s Sendai No. 1, which was followed by the Sendai No. 2 reactor in October. These two reactors produce a combined 1,700 MW of power and are part of the country’s ultimate plan to increase nuclear energy to over 20% of the country’s total energy mix by 2030.With Japan restarting its nuclear industry, this could eat into future LNG import market share.

The country’s 2030 total energy mix strategy is:

  • Solar/hydro, 24%
  • Nuclear, 22%
  • Natural gas, 27%
  • Coal, 26%
  • Oil, 3%.

Japan has over two-dozen LNG regasification plants but the country’s new energy targets show natural gas losing at least 12% market share by 2030. The restart of both Sendai reactors is expected to displace over 1.5 MMtpy of LNG. Should multiple nuclear reactors come back online, LNG imports could decrease over the next decade.

Regardless, Japan is building three new LNG import terminals (Hitachi, Soma and Toyama Shinkou), as well as additional LNG storage tanks at various locations.

Japan is aiming to become an international LNG trading hub by the early 2020s, opening access to receiving terminals and beefing up large-scale storage facilities.

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Photo: Tokyo Gas has completed construction and begun operations at its 100 Mt–110 Mt capacity Hitachi LNG terminal. To meet future demand, the company plans to build a second LNG storage tank by 2020. (Source: Tokyo Gas)