Daily Newsletter

12 March 2024

Daily Newsletter

12 March 2024

Japan to experience LNG surplus as domestic demand falls – report

Japanese utilities are looking to export the glut to emerging markets.

Alfie Shaw

A fall in demand for LNG in Japan could cause domestic oversupply of the energy source, according to a report published by the Institute for Energy Economics and Financial Analysis (IEEFA).

Japan once consumed all the LNG it imported, but falling consumer demand is forcing the nation’s four largest utilities – JERA, Tokyo Gas, Osaka Gas and Kansai Electric – to consider exporting its surplus, putting them in competition with global suppliers. The IEEFA predicts that the oversupply of the four utilities could increase to almost 12 million tonnes (mt) in the coming years. The utilities import all the LNG that they sell, with none produced domestically.

According to the report, the share of Japanese contracts without destination restrictions will rise through to 2030, giving companies greater flexibility to resell volumes of LNG overseas.

Sam Reynolds, co-author of the report and LNG research lead at IEEFA, said: “The importance of Japan’s shift into LNG resales and marketing should not be underestimated. Rather than absorbing more volumes from the global market, Japanese companies may increasingly find themselves in direct competition with global suppliers for potential customers in emerging markets.”

Owing to limited opportunities in Japan’s domestic gas market, the utilities are seeking out LNG demand abroad by investing in midstream and downstream gas infrastructure such as regasification terminals and LNG-fired power plants in South and South East Asia.

According to data from the Japan Organisation for Metals and Energy Security, LNG sales by Japanese companies to companies abroad increased from 14.97mt in 2018 to more than 38mt in 2021. Likewise, despite a fall in domestic sales, the total volume of LNG transacted by Japanese companies increased over the same time frame.

The IEEFA notes that domestic LNG demand is falling due to a rise in nuclear and renewable production in the country, as well as government policies instigating movement away from the energy source. LNG demand in Japan could fall to roughly one-third of 2019 levels if the government's electricity generation targets are achieved, according to the report.

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