JERA sees need to secure 16 mil mt/year long-term LNG contracts in 2030s: Global CEO

Japan's largest power generation company JERA sees a need to secure 16 million mt/year long-term LNG contracts in the 2030s, Yukio Kani, global CEO and chairman, said June 27.

"Looking at the 2030s, about 16 million tons[/year] of existing [long-term LNG supply] contracts will expire," Kani told a press conference in Tokyo.

"If LNG demand doesn't change much, we will need to significantly replenish our LNG procurement," Kani said, adding that the company's long-term LNG supply contracts total about 25 million-26 million mt/year currently.

"If electricity demand increases, the situation changes even further," he said, adding the company had recently secured 5.5 million mt/year of LNG from the US Gulf Coast.

"From now until around 2030, about 4 million tons[/year] will be expiring. Contracts will continue to expire, and we will need to renew them continuously. We will be contracting accordingly," he said.

JERA handled about 35 million mt/year of LNG in fiscal year 2024-25 (April-March), when it consumed about 22 million mt of LNG for thermal power generation in the fiscal year to March 31. JERA also purchased 5 million mt of spot LNG in FY 2024-25.

Speaking at the company headquarters, Kani said, "The required amount of LNG is increasingly fluctuating. There are seasonal variations throughout the year, and even in the medium to long-term estimates for required amounts.

"There is a significant range for around 2035 and 2040 in terms of how many thousand tons will be needed," he said.

"What we plan to do is to secure to a certain extent, but if we don't need it, we want to create a flexible system that allows us to divert it elsewhere," Kani said. "If there is LNG that can offer such conditions, and if the seller's conditions are right, we want to properly capture such opportunities."

JERA's pursuit of long-term LNG supply contracts comes after a pause several years ago as a result of increased pressure for decarbonization, but the company has started seeking the long-term supplies as the fuel will be necessary over the long term, Kani told Platts, part of S&P Global Commodity Insights, on the sidelines of the press conference.

Demand growth

In light of Japan's expected power demand growth in the mid-to-long term from artificial intelligence and electrification, JERA is adjusting its business plan based on the expected demand growth, CEO Hisahide Okuda said at the same press conference.

Despite the country's rigorous energy-saving measures, Okuda, who is also president and COO, said that data center demand has been increasing up to now.

Commenting on 2050 power supply and demand scenarios released June 25 by the Organization for Cross-regional Coordination of Transmission Operators, which expects Japan's power demand to grow to as much as 1.25 trillion kWh in 2050, Okuda said, "To be frank, I recognize that it is a very large demand assumption."

"However, this is just one scenario, and a wide range of scenarios compared with discussions within national councils and other forums," he said, adding that the company needs to recognize that there is a certain level of variability in scenarios.

"In the future, as more technologies like ChatGPT emerge, the volume of data handled will increase even more. The question is whether we can continue to absorb this increase through energy efficiency," he said.

"There are various opinions on this matter, but many believe it will become quite challenging," Okuda said. "Therefore, I believe the basic line for our business planning should be based on the premise that electricity demand will enter a phase of increase again."

While recognizing the need to assess the rapidly changing use of electricity at data centers because of technological advancements, Okuda said, "While assessing this, we should maximize the utilization of existing power sources to ensure a stable supply."

Thermal replacement

"For the portions that cannot be sufficiently covered, we will replace and supplement them with new installations. I want to make various preparations so that we can act swiftly in such a manner," he said.

Most recently, JERA said June 18 that it has begun preparations for an environmental impact assessment to replace four gas-fired power units at the Sodegaura thermal power plant in Tokyo Bay.

Under the plan, JERA plans to replace the 600 MW No.1 Sodegaura gas-fired unit as well as 1 GW No. 2, 1 GW No. 3 and 1 GW No. 4 gas-fired units with three gas turbine combined cycle for a combined capacity of about 2.6 GW, with an eye to starting up in FY 2032-33 or later.

"Of course, securing the kilowatt capacity and investing in it means that thermal power will fundamentally operate as a buffer against demand fluctuations," Okuda said. "However, the truth is that managing these fluctuations incurs significant costs."

"While long-term decarbonization auctions allow for some recovery of fixed costs, managing fluctuations essentially means that we must frequently adjust the quantity of fuel," he said. "This adjustment of fuel quantities carries substantial costs and risks."

"We have made some progress in recovering fixed costs through various measures, and we have some prospects for recovery," he added. "On the other hand, we still need to discuss the risks associated with variable costs for managing fluctuations with all stakeholders."