Analysis: Japan builds gas markets in Asia to boost LNG trading, energy security

Sojitz

12/07/2024 24:00

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      Companies invest in downstream gas assets in Asia 
    

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      Japanese firms build gas markets to help sell excess LNG
    

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      LNG seen as transitional fuel in move to renewables 
    

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      Activist investors raise alarm 
    

  
    By Katya Golubkova and Yuka Obayashi
       TOKYO, July 12 (Reuters) - Japanese companies foreseeing
a growing surplus in stocks of liquefied natural gas (LNG) as
their demand for the fuel wanes in coming years, are scrambling
to invest in regional markets to provide potential outlets to
sell the gas.
    As more nuclear plants restart and renewable energy gains
momentum, Japan's LNG imports are at their lowest in over a
decade, spurring companies to turn to Asia to unload supplies
contracted during past market shocks, such as Russia's 2022
invasion of Ukraine.
    Energy flexibility and security concerns ensure that Japan
wants to stay a big player in LNG, but it is looking for markets
to sell its excess, in line with a government strategy to keep
volumes at 100 million tonnes by building gas demand in Asia.
    This year, Tokyo Gas  9531.T  announced a study for
1.5-gigawatt LNG-to-power project in Vietnam and bought a stake
in an LNG regasification terminal in the Philippines, while
trading houses Marubeni  8002.T  and Sojitz  2768.T  launched a
1.8 GW-big LNG-fired power plant in Indonesia. 
    Led by JERA, Tokyo Gas, Osaka Gas  9532.T  and Kansai
Electric Power  9503.T , Japan is a stakeholder, feedstock
provider or participant in studies for more than 30 gas-related
projects, data from the Institute for Energy Economic and
Financial Analysis (IEEFA) and Reuters shows.
    Whether operating or yet to be launched, these are located
in Bangladesh, India, Indonesia, Malaysia, Myanmar, the
Philippines, Singapore, Taiwan, Thailand, and Vietnam. 
    "Japanese LNG demand is uncertain, but the government wants
to secure stable supply over the long term," said Yoko Nobuoka,
senior analyst for Japan power research at LSEG.
    "Developing its own trading capability and creating an
Asia-wide gas market would help to increase energy security and
hedge risks of LNG surplus," she said.
    Japan stepped up imports of LNG after the Fukushima nuclear
disaster of 2011 led to closure of all its nuclear power
reactors, and Tokyo has increased participation in LNG projects
globally to secure supply. 
    But the comeback of nuclear power and the roll-out of
renewable energy have led resource-scarce Japan to cut LNG
imports for its own needs, with shipments falling by 8% last
year to the lowest since 2009. 
    In 2020, the industry ministry adopted a plan to hold LNG
handling capacity, including trade, at 100 million tons a year
by 2030, a key feature of which was building Asian gas markets.
    "There are various pathways towards achieving carbon
neutrality or net-zero emissions in Asia," METI said in emailed
comments. "Gas and LNG, along with renewables and energy
conservation, can play a role in the pathways."     
    Japan's shipments, both for domestic use and sent to third
countries, were 102 million tons of LNG, in the year that ended
in March 2023.
    Tokyo Gas, the country's top city gas supplier, has set a
target of trading 5 million tons of LNG annually by 2030, up
from about 3 million now.
    "We have a chance to sell LNG to these projects and it will
contribute to an increase in our LNG trading volume," Tokyo Gas
officials told Reuters in emailed comments.
    Since 2019, Japanese firms have invested in new LNG import
terminals with combined capacity of 16.2 million tons in
Bangladesh, Indonesia and the Philippines, according to Reuters
calculations based on the International Gas Union data.
    Another 13 million tons a year of LNG import capacity is to
come in Vietnam and India with Japan's investment before 2030,
taking the total such volume to 29.2 million tons - close to
what Japan traded in the year ended in March 2023. 
    Japan's LNG sales to third countries doubled to 31.6 million
tons in fiscal 2022 from fiscal 2018, boosted by participation
in upstream projects globally and supply contracts, the Japan
Organization for Metals and Energy Security (JOGMEC) says. 
    Of Japan's 102 million tons of LNG imports in fiscal 2022,
domestic use accounted for 71 million tons. 
    With Japan's own LNG demand projected to fall another
quarter by the end of the decade to some 50 million tons, top
utilities JERA, Tokyo Gas, Osaka Gas and Kansai Electric could
have 12 million tons of LNG oversupply, the IEEFA estimates.

    DESTINATION CLAUSES
    Tokyo's growing LNG ambitions are reshaping its procurement
strategy. 
    In fiscal 2021, 53% of gas bought by Japanese firms, or 45
million tons, was under contracts banning resale, a condition
imposed by producers such as Qatar, according to JOGMEC.
    That share fell to 42% last fiscal year, its survey showed,
partly also because Tokyo clinched more deals with more flexible
producers, such as the United States and Australia. 
     "However, by 2030, 60% of contracts will not have
destination restrictions, meaning that Japan's ability to trade
LNG is likely to increase this decade," said Christopher
Doleman, an LNG specialist at IEEFA.    
    Trading competition with China, which surpassed Japan as the
biggest LNG buyer last year and is expanding into global trade,
also plays a role. 
    China's LNG imports are forecast to grow by up to 12% this
year, to 80 million tons, PetroChina  601857.SS  says, and
Beijing is reselling some LNG to third countries. 
    "In the medium term to 2030, trading competition could
become fierce, as the next bearish cycle begins with a wave of
new supply," LSEG's Nobuoka said, referring to new LNG projects
set to go onstream in coming years that need buyers.
     
    TRANSITION PUSHBACK
    Climate activists increasingly say Japan, with a quarter of
its power generated by non-nuclear renewable energy, should
bypass gas, which the industry considers a "transition" fuel,
and help other countries to decarbonise by moving straight to
renewables from coal.
    Australian Market Forces, a climate activist group that
holds shares in Chubu Electric Power  9502.T  and Tokyo Electric
Power  9501.T , co-owners of top utility JERA, has urged it to
rethink plans for Asia and sharpen focus on renewables instead. 
    "One of the greatest threats to climate action globally is
the proposed build out of LNG-to-power infrastructure in
emerging Asia," said Will van de Pol, chief executive of Market
Forces.  
    As a transitional fuel, LNG is 'indispensable for achieving
decarbonisation,' JERA, which has both gas and renewable energy
projects in Asia, told Reuters by email.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Japan’s key gas infrastructure projects in Asia    https://reut.rs/4eTZoGR
Japan LNG handling volumes, mln T/year    https://reut.rs/3VQku06
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 (Reporting by Katya Golubkova and Yuka Obayashi in Tokyo,
additional reporting by Emily Chow in Singapore; Editing by Tony
Munroe and Clarence Fernandez)
 ((jekaterina.golubkova@thomsonreuters.com;))