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.
Production and refining.
New LNG trains that have come online represent the beginning of another major supply wave from Australia and Papua New Guinea. Australia is the fourth-largest LNG exporter in the world, and is on track to surpass Qatar to become the world's largest exporter, by investing tens of billions of dollars on the development of FLNG projects. The timing of the new capacity startups is playing a large part in the direction of market supply in the coming years, especially in the major gas-importing countries of Japan, South Korea and Taiwan. Japan and South Korea have limited gas resources and, therefore, limited domestic production.
Japan's substantial decrease in demand for transportation fuels has resulted in excess domestic refining capacity. In turn, refinery utilization has been cut or ceased operations. On top of declining demand, the Japanese government is seeking to promote operational efficiency within the refining sector through its Refining Ordinance plan, which was introduced in 2010 by the Japanese Ministry of Economy, Trade and Industry (METI). The plan, which took effect in 2014, called for a new mandatory cracking-to-crude distillation capacity ratio of 13%.
The country's second phase of its Refining Ordinance is likely to shed up to 400 Mbpd of additional domestic refining capacity by 2017. To adhere to the mandatory requirements, Japanese refiners are expected to decrease utilization rates, consolidate operations or shut down facilities. A third ordinance could be on the horizon, but an official statement from METI has not been announced.
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.
LNG facility construction and partnerships.
Tokyo Gas, Japan's biggest city gas supplier, has completed construction of its Hitachi LNG terminal in the Hitachi Port area and commenced operations. It has begun using the Ibaraki-Tochigi line, a newly constructed high-pressure gas pipeline. The Hitachi LNG terminal is the company's first LNG terminal located outside Tokyo Bay, and is equipped with an LNG tank with a capacity of 100 Mt–110 Mt. By completing the Ibaraki-Tochigi pipeline, Tokyo Gas now owns 590 mi of high-pressure pipeline network, mainly around the Tokyo metropolitan area. The construction of the Hitachi LNG terminal and Ibaraki-Tochigi pipeline were begun in 2012 to meet the future growth of gas demand. The company plans to build a second LNG storage tank at the Hitachi terminal by 2020.
Tokyo Gas said it will also construct a new LNG storage tank at its Sodegaura LNG terminal in Chiba Prefecture on Tokyo Bay. The new LNG tank is expected to enter service by 2023.
Japan Petroleum Exploration Co. Ltd. (JAPEX) has selected Aconex Ltd., a provider of a cloud collaboration platform, to manage the construction of the Soma LNG terminal. Project deliverables consist of a cargo ship berth, a massive storage tank and a connecting 24-mi LNG pipeline, which will convey the vaporized gas from the terminal to the JAPEX Niigata-Sendai pipeline. The estimated project value is $500 MM, and the three-year delivery schedule is accelerated compared to other LNG terminal projects. Plans for the terminal include measures to protect all facilities from the effects of earthquakes and tsunamis.
Four new LNG terminals, including the JAPEX complex, are scheduled to go onstream by the end of 2018. When these terminals begin operations, Japan will have another 960 Mkl of LNG storage capacity. Four tanks, with total storage capacity of 790 Mkl, are also expected to be operational at the same time.
- Tohoku Electric Power Co.'s Shinsendai LNG terminal is slated for completion in 2016. Tohoku Electric has decided to procure LNG from the adjacent Chubu Electric Power Co.'s Joestu LNG terminal for fuel supply to Joestu LNG-fired thermal power station unit 1, which will be completed June 2023.
- Hokuriku Electric Power Co. will introduce LNG receiving facilities for supply to its first LNG-fired thermal power plant, the Toyama Shinko thermal power station. The company is targeting a 2018 operations date. It is anticipated that Hokuriku Electric will begin to receive LNG for commissioning, etc. before the startup of the power station.
- Tokyo Electric Power Company (TEPCO) plans to newly construct two LNG tanks to enhance efficiency of operations at its existing Futtsu LNG terminal on the Tokyo Bay coast. Also, Hokkaido Electric Power Co. has proceeded with construction of LNG tanks at the site of Ishikari LNG terminal for its first LNG fueled thermal power plant. At the terminal, two LNG tanks will be additionally built including the one owned by Hokkaido Gas Co. Ltd.
LNG purchase agreements.
Tokyo Gas and the second-biggest power utility, Kansai Electric Power Co., will partner on LNG purchases and share technology for gas-fired power plants. Both utilities are among the biggest LNG buyers in Japan. They also plan to pursue further cooperation in flexible LNG procurement to achieve stable supplies at lower prices.
Regional utility Hokuriku Electric Power Co. signed its first agreement to purchase LNG as it prepares for a move into fuel-for-electricity generation. Beginning in April 2018, Japan will receive 380 Mtpy for 10 years from Malaysia LNG. The shipments will be regasified in Hokuriku Electric's first gas-fired plant, a 424.7-MW unit being built at its Toyama Shinko station west of Tokyo, which is scheduled to start operations in November 2018.
Malaysia LNG is 90% controlled by state-owned Petroliam Nasional Bhd (Petronas), with Malaysia's Sarawak State Government and Japan's Mitsubishi Corp. holding 5% each.
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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