FCO reviews Japanese LNG imports and nuclear restarts

Foreign & Commonwealth Office of the UK published a research and analysis prepared by UK Trade & Investment on Japanese LNG imports and nuclear restarts.

A couple of major decisions in Japan will affect global LNG markets, claims the report. Two Japanese utilities team up to become the largest single global importer of LNG; the Japanese government is using gas reform at home and exploration abroad to try to reduce their LNG bill. And the first two nuclear restarts receive political approval with final technical hurdles to overcome. 4-6 restarts possible by mid 2015.

In the first week of November, during the third global LNG Producer-Consumer Conference , the Tokyo Electric Power Company and Chubu Electric established a single company to combine their gas businesses. The new company will import 39 million tonnes of LNG per year, becoming the world’s largest single LNG customer with 16% of global demand (more than five times that of the UK). Japan remains the largest importer of LNG with 37% of global demand. Tepco and Chubu’s alliance is likely to expand into other energy areas beyond LNG.

Report finds that despite projections that global LNG supplies will double by 2020, Asian prices remain stubbornly high. Japan is particularly keen to reduce them, the huge burden of importing fuel to replace idled nuclear reactors continues to create a national trade deficit. Japan plans to do achieve it by:

  • Accessing new supplies: notably US shale, but also resources in ‘deep, distant and difficult locations’ – the Arctic, Canada, Alaska, and Russia which are becoming more accessible with ice melts;
  • Constructing a pipeline: a long-term goal yet to be clearly defined. Liberalising the gas market: this has already started and resulted in a number of new players entering the market including mobile phone giant Softbank; and
  • Establishing an Asia trading hub in Japan: the government have taken steps to improve price transparency and are encouraging more flexibility in contracts – e.g. to allow surplus to be sold on. An early Tokyo trading hub started in September this year and has 20 participants so far.

The second development highlighted by the FCO concerns Japan’s 48 nuclear reactors that have been idle for the last two years. But 7 November saw political approval for the restart of two reactors at Sendai Nuclear Power Plant (local government signed off the restart). Further technical and regulatory requirements are likely to take until at least February. Two further reactors could be granted initial safety approval soon. So up to 4-6 power stations could be running by the summer.

Inter alia, Japan’s nuclear restarts impact:

  • global LNG demand – theoretically, each restart displaces around 1mn tonnes of Japanese LNG demand although some will substitute oil rather than gas fired plants;
  • climate change – nuclear restarts could give Japan an extra 10% emissions reductions by 2030;
  • commercial opportunities for the UK;
  • Japan’s economy, which will receive a significant boost – both in terms of trade balance and the financial health of Japanese utilities. Each restart saves a $750mn annual LNG bill.

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Press Release; Image: gov.uk