Japan could lose its pole position as the world’s top LNG importer to China as early as 2022, according to a new report by global energy consultancy Wood Mackenzie on Tuesday.
Wood Mackenzie calculates in its new report that by 2022 LNG imports in Japan are expected to decline 12% to 72.8 million tonnes per annum (mmtpa) compared to 2018, while China’s import volume are forecast to rise by 37.5% to 74.1 mmtpa.
Despite losing this leadership position, Japanese buyers is expected to 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 liberalization underway, this innovation will provide buyers more leverage and opportunities in future contracting discussions," according to Wood Mackenzie.
Nonetheless, the consultancy says that ensuring security of supply through diversity of supply sources will remain a primary concern while Japanese buyers should continue to lead the market in sourcing LNG from new supply regions.
Senior analyst Lucy Cullen at Wood Mackenzie stated that while LNG demand is declining, Japanese imports would 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,” she said.
She explained that the decline in Japanese imports would be driven by competition from coal, nuclear and renewables in the power sector and slow macroeconomic growth.
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," she said.
Wood Mackenzie assumes 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,” she asserted.
Japan is also targeting 22-24% of its 2030 generation mix to come from renewables, including hydro.
She also said that Japan would just miss its ambitious 2030 target with renewable generation, including hydro, comprising just over 20% of the 2030 mix.
By Gulsen Cagatay