Adding gas to the mix

Japan is diversifying its energy mix by increasing its levels of consumption of LNG and LPG

The Japanese capital of Tokyo is home to the world’s largest LNG – natural gas super-cooled into liquid form at -260ºF – importing zone. Japan is the world’s largest importer of LNG, swallowing up 35 percent of global demand every year. Today, imported LNG accounts for 44 percent of electricity generation after the Fukushima nuclear accident in 2011 meant nuclear reactors were taken offline, and most of it comes from Malaysia, Australia and the Gulf States. Thanks to the U.S. shale revolution, Japan has an unprecedented chance to diversify even further its source markets, and lower its energy costs at the same time.

For now, the country has agreements for at least 1.46 billion metric tons of supply up until 2040, according to Bloomberg New Energy Finance estimates. As global supply of LNG increases as a result of new U.S. supply, LNG buyers have gained bargaining power, and Japan is starting to take another look at its existing contracts to check whether the resale restrictions tied up in some of them contravene fair trade laws. Analysts predict that this could lead to the renegotiation – in Japan’s favor – of more than $600 billion worth of agreements.

In order to maintain a healthy gas market at home, the government is also working on deregulating the sector.

“Assuredly, [this] will open the gates to enter the gas industry to many other players and will increase competition,” says Michiaki Hirose, President of Tokyo Gas, the country’s largest gas utility and the first to bring LNG to the country in 1969.

Since the 2011 earthquake, Japan’s increased focus on alternatives to nuclear fuel have seen the company put in place a number of initiatives to enhance the LNG value chain, including expanding its source markets.

Osamu Masuda, President, Astomos Energy

Osamu Masuda, President, Astomos Energy

The country imported its first liquefied shale gas cargo from the United States earlier this year, with Japanese Prime Minister Shinzo Abe considering further increasing American energy imports, including LPG – liquefied petroleum gas, better known as propane.

“I see the LPG industry growing,” says Osamu Masuda, President of Astomos Energy. Set up in 2006, the company operates 23 LPG shipping vessels, and has grown into one of the world’s largest LPG traders and importers. “Historically, the main suppliers were Middle Eastern countries accounting for 90 percent of our supply. However, now the Japanese import volume ratio has changed and roughly 30 percent is coming from the U.S.” Mr. Masuda adds that, in the wake of the shale gas revolution in the U.S., his company is now building new partnerships. “With the recent opening of the Panama channels our supply from the U.S. has new options. We have been able to diversify our sources and we are seeking new alternatives in Australia and Africa to reduce the geopolitical risk, giving us an alternative supply and increasing our bargaining power.”

The plan for the country is not only to shore up its LNG supply, making sure it gets the best possible deal at the best possible cost, but also find new ways to capitalize on low LPG prices by increasing its share in the overall energy mix. And its private sector is hard at work making this happen.

Astomos sees enormous potential for growth in LPG, both at home in Japan and further afield. “[We are] planning to create new LPG demand in the shipping bunker sector. We think LPG has incredible potential as a shipping fuel because it will reduce sulfur emissions by 90 percent compared with heavy oil, and it requires less investment in creating tanks, barges and terminals,” says Mr. Masuda, adding that while LPG is still somewhat of a niche market, it has the potential to become a major energy source. “Industrial use of LPG is very small in comparison to other alternatives,” he points out, although he sees scope for power generation using LPG to gain market share in specific areas, for example on islands where building fuel tanks is not feasible.

Meanwhile, Japan Gas Energy is working on boosting energy security by replacing oil with LPG. “We are looking into creating higher demand for LPG especially in the industrial and commercial sectors,” says Masatoshi Yoshida, the company’s president and CEO. “The population has already started to look into new options and alternative sources of energy, hence, based on this movement we are aiming to educate and raise awareness about the benefits of LPG.”

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Jonathan Meaney

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