INTERVIEW: JERA to source more US LNG, secure long-term contracts under new strategy: CEO

JERA will secure "a certain volume of long-term [LNG] contracts" from a portfolio of flexible and reliable suppliers beyond 2030, buoyed by the fuel's reassured position under Japan's new Strategic Energy Plan, CEO Hisahide Okuda told Platts, part of S&P Global Commodity Insights.

"We believe we must have a certain volume of long-term [LNG] contracts [for energy security and price stability]," Okuda, who is also president and COO of the largest Japanese power generation company, said Feb. 21 in Tokyo in an exclusive interview as he was commenting on the country's bulk of long-term LNG contracts expiring around 2030.

"Although we will have long-term contracts, we will try to make sure we will have the contracts with [supply] destination is flexible and that FOB (free on board) arrangements can be made to a certain extent," Okuda said, adding that US LNG supply will be important in this context.

"Basically, I believe that an increase in US supply is positive, considering energy security," he said. "Taking into account of the current portfolio, we think that the proportion of US [supply] is relatively low from a balanced perspective, so we believe it would be good to increase this."

Japan imported 6.34 million mt of US LNG in 2024, accounting for 9.6% of the country's total imports of 65.89 million mt, according to Ministry of Finance data.

US President Donald Trump said Feb. 7 that Japan "will soon begin importing historic new shipments of clean American liquefied natural gas in record numbers" after a summit meeting with Japanese Prime Minister Shigeru Ishiba.

In its pursuit of a balanced LNG supply portfolio, Okuda said it was also "very important" to combine flexible supplies with supplies from "other projects that, while not very flexible, have vast reserves and are competitive."

"In the case of Qatar, it has an overwhelmingly large production volume and abundant reserves, and it also has a very high capacity to provide emergency support when needed. This becomes extremely important for energy security," he said.

Asked about prospects of purchasing Qatari LNG beyond its current contractual expiry of 2028, Okuda said: "We want to continue the discussions with the understanding that it is a very important energy source," declining to elaborate.

QatarEnergy announced in February 2024 a new expansion of its LNG production capacity, with the target raised to 142 million mt/year by the end of 2030. The increase compared with the 127 million mt/year planned by 2027 from 77 million mt/year currently.

Strategic Energy Plan

The Japanese cabinet approved Feb. 18 the 7th Strategic Energy plan, the country's principal energy policy, which has placed LNG as "an important energy source" even after achieving 2050 carbon neutrality, as well as underlined the need of securing long-term LNG contracts through a public-private partnership.

"We understand that the positioning of LNG itself is very positive. Unlike the last [plan], it is now recognized as very important in terms of supply capability, and even with the inclusion of renewable energy, it plays a crucial role in balancing the fluctuations," Okuda said.

The FY 2040-41 power generation mix in the Strategic Energy Plan comprises renewables at about 40%-50%, thermal power at around 30%-40% and nuclear power at about 20%, compared with renewables at 22.9%, thermal power at 68.6% and nuclear power at 8.5% in FY 2023-24.

The Strategic Energy Plan projects Japan will need 53 million-74 million mt of natural gas in its primary energy supply for the fiscal year 2040-41 (April-March) under multiple scenarios based on 61%-73% greenhouse gas emissions targeted cuts from FY 2013-14 levels.

Rebuilding portfolio

Commenting on the gas supply gap of about 20 million mt in FY 2040-41, Okuda said he is less concerned about the supply gap in 15 years ahead as he believes the gap should converge somewhere in the coming years.

"Rather, the more challenging aspect is the short-term adjustments, which are far more difficult. We need to establish a solid framework for that," Okuda said.

"Basically, it has become clear that LNG plays a balancing role within the energy mix, so we need to have more volume flexibility in procurement than ever before," he said, adding that the company will also procure LNG from companies that can supply in the event of an emergency.

"Therefore, we are working to rebuild our LNG procurement portfolio, with an aim of appropriately responding to the fluctuations in renewable energy output during normal times, as well as to effectively handle changes during emergencies."

As the Strategic Energy Plan stated that efforts will be made to reduce generation output (kilowatt-hour) primarily from inefficient coal-fired power, Okuda said JERA is also looking at idling inefficient coal-fired power during off-peak spring and autumn demand seasons that would not only help cut CO2 emissions but also help balance its power supply over demand.

"Until now, we have absorbed fluctuations in ultra-short-term to short-term and medium-term power demand from using gas-fired power, but this style tends to reduce the volume of long-term contracts," Okuda said.

However, using coal-fired power to manage significant seasonal demand fluctuations, it would allow JERA to increase the amount of LNG available for baseload, he said.

JERA, which supplies roughly 30% of Japan's total power generation volumes, used 23.01 million of LNG and 20.03 million mt of coal for thermal power generation in Japan in FY 2023-24. Including its sales volumes, JERA handled about 36 million mt of LNG and 32 million mt of coal in FY 2023-24.

Securing ammonia

Commenting on hydrogen and ammonia policy in the Strategic Energy Plan, Okuda said he does not see a significant change in the policy as among key solutions to decarbonize thermal power alongside carbon capture and storage, although it did not present an explicit share of hydrogen and ammonia in the FY 2040-41 power generation mix.

"We are not overly fixated on ammonia or hydrogen; what is fundamentally important is that maintaining thermal power generation is necessary within Japan's energy mix. This means that achieving zero emissions for thermal power is essential," Okuda said.

JERA still expects to see final investment decisions on ammonia supply projects to be made in 2025, based on an assumption that the country's price gap support measures to be undertaken, Okuda said.

"We hope to have an outlook of at least 500,000 mt[/year], but it is not necessarily better to have more than that," Okuda said. "The required amount will obviously change depending on how we operate coal-fired power generation in the future, particularly at Hekinan."

"While the CO2 emissions will decrease by the amount of ammonia we use, we must also consider that there is still coal that emits CO2 in the remaining 80%," he said, adding the company has been saying that converting 20% ammonia at a 1 GW coal-fired unit at Hekinan would require 500,000 mt/year, assuming it is running at full capacity continuously.

"If the operation changes, the required amount will also change, so we need to carefully assess this to determine the final quantity."