China to Overtake Japan in LNG Imports

Shailaja A. Lakshmi
Wednesday, July 24, 2019

Japan could lose its position as the world’s top LNG importer to China as early as 2022, said a new report by consultancy group Wood Mackenzie.

By then, LNG imports in Japan are expected to decline 12 per cent to 72.8 million tonnes per annum (mmtpa) compared to 2018, while China’s import volume rises 37.5 per cent to 74.1 mmtpa.

The consultancy firm said that despite losing this leadership position, Japanese buyers will continue to take a lead in contracting innovation with developments such as hybrid deals, coal indexation, joint procurement and carbon neutral cargoes.

As several long-term contracts wind down from the early 2020s and with gas and power market liberalisation underway, this innovation will provide buyers more leverage and opportunities in future contracting discussions.

Meanwhile, ensuring security of supply through diversity of supply sources will remain a primary concern. Japanese buyers should continue to lead the market in sourcing LNG from new supply regions.

“While LNG demand is declining, Japanese imports will remain above 70 mmtpa through much of the 2020s. It will remain the second largest LNG consumer in the world until at least 2040, with demand still exceeding 60 mmtpa. As such Japan still provides ample opportunities for LNG sellers, particularly as existing contracts expire,” said senior analyst Lucy Cullen.

“The decline in Japanese imports will be driven by competition from coal, nuclear and renewables in the power sector and slow macroeconomic growth,” commented Cullen.

Japan has remained an outlier as a developed power market that has still prioritised construction of new coal capacity. Opinions on coal within Japan vary widely with pro-coal policy targets misaligned with public sentiment and corporate and investment activities.

Despite sustained low LNG spot prices, Japan’s electricity market does not favour coal to gas switching on a wide scale. The country remains well-contracted in LNG to the early 2020s as US and Australian supplies ramp-up. As a result, the average cost of gas for Japanese utilities remains well above spot price and coal is still the cheapest form of electricity generation after nuclear and renewables on a short-run marginal cost basis.

Under Japan’s 5th Strategic Energy Plan (2018), the government aims to decrease gas and coal generation (down to 27% and 26% shares, respectively) and offset with greater low-carbon nuclear and renewable generation.

“The tide appears to be turning with increasing restrictions on financing and building coal. As such, we expect this policy target and such a robust share of coal in the generation mix will be increasingly difficult to sustain. This would improve the outlook for LNG,” added Cullen.

On the nuclear front, Japan restarted five plants in 2018 alone. With next restarts scheduled for the mid-2020 and 2021, this will put downward pressure on LNG import requirements in the early 2020s. Although nuclear outages remain a risk in this period if anti-terrorism measures are not met on time.

“We assume 15 reactors will be back online by 2030, accounting for 12% of power generation, much lower than the official target of 20-22%. While nuclear restarts generally dampen gas generation, our lower nuclear number implies a more optimistic view of LNG demand compared to the government,” commented Cullen.

In line with its pursuit of a low-carbon future, Japan is also targeting 22-24% of its 2030 generation mix to come from renewables (including hydro). While Wood Mackenzie forecasts aggressive additions of wind and solar capacities, further investment will also be needed on power grid infrastructure to cope with this level of renewable generation.

"Japan will miss its ambitious 2030 target with renewable generation (including hydro) comprising just over 20% of the 2030 mix,” concluded Cullen.

Categories: Energy LNG Asia Research

Related Stories

Ventura Offshore’s Semi-Sub Rig to Keep Drilling for Eni in Asia

SBM Offshore Starts Construction of FSO for Trion Oil Field off Mexico

Petronas to Leverage AI to Expedite Oil and Gas Exploration Activities

Synergy Marine Group Completes Conversion of LNG Vessel to FSRU

Technip Energies Gets FEED Job for Inpex’ Abadi LNG Project in Indonesia

Shelf Drilling Lands New Jack-Up Contract in Vietnam, Extends Egypt Deal

Inpex Kicks Off FEED Work for Abadi LNG Scheme Offshore Indonesia

ADNOC Signs Long-Term LNG Deal with Hindustan Petroleum Corporation

Thailand's PTT to Buy LNG from Glenfarne's Alaska LNG Project

CDWE Wraps Up Pin Pile Installation Job for Taiwanese Offshore Wind Farm

Current News

Ventura Offshore’s Semi-Sub Rig to Keep Drilling for Eni in Asia

SBM Offshore, SLB to Optimize FPSO Performance Using AI

MODEC Ramps Up Hammerhead FPSO Work After ExxonMobil's Go-Ahead

Aesen, DOC JV Targets Subsea Cable Logistics

Timor Gap Boosts Stake in Finder Energy’s Timor-Leste Oil Fields

SBM Offshore Starts Construction of FSO for Trion Oil Field off Mexico

Russia Targets 2028 for Sakhalin-3 Gas Project Start Up

Seatrium Secures ABS Backing for Deepwater FPSO Design

MDL Secures Cable Laying Job in Asia Pacific

Hibiscus Petroleum Starts Drilling at Teal West Field off UK

Subscribe for AOG Digital E‑News

AOG Digital E-News is the subsea industry's largest circulation and most authoritative ENews Service, delivered to your Email three times per week

https://accounts.newwavemedia.com