Japan to unveil first support for building new LNG tanks for energy security

Japan's Ministry of Economy, Trade and Industry is set to unveil a set of proposed LNG policy steps Nov. 8, including a first-of-its-kind measure to help build new LNG storage tanks for the country's energy security, a METI source told S&P Global Commodity Insights Nov. 7.

The proposed actions will be released at a METI subcommittee on energy resources development meeting, following months of discussion on what the panel will contribute to Japan's ongoing discussion to form the next Strategic Energy Plan, the country's principal energy policy, the source said.

LNG players in Japan and globally have been closely watching the policy developments and the Strategic Energy Plan for language around LNG's medium to long-term role in the Japanese energy mix. Japanese industry is seeking clarity on demand certainty for the fuel in coming decades that would be needed to underpin investments and supply agreements.

The Nov. 8 subcommittee meeting, however, will not release Japan's long-term LNG demand outlook as it will likely be considered and decided at METI's strategic policy committee as part of discussions to form the Strategic Energy Plan, the source said.

At the upcoming subcommittee meeting, METI will instead propose some specific policy actions in the area of pursuing gas reserve mechanism that could constitute a basis for proving policy supports once they are incorporated in the Strategic Energy Plan, the source said.

Proposed measures

At the subcommittee meeting, METI will unveil its plan of financially supporting Japanese companies jointly investing on LNG storage tanks in the country and overseas should such investments contribute to the country's energy security, the source said.

"We will list such specific examples as jointly using [LNG storage] tanks at home and overseas, or promoting such usage," said the source. "This is about securing a physical storage capacity of LNG."

Asked how METI will promote joint usage of LNG storage tanks in Japan with little surplus capacity, the source said: "As we have received interests from several [Japanese] companies, our basic principle is to support those companies."

"What we have in mind is to support new builds [of LNG storage tanks] but we have not decided anything about how we will provide the support," said the source, adding that its support could cover for "reloads" of LNG cargoes to keep the use of tanks with a high turnover rate.

The upcoming policy developments would likely help Japanese companies build storage facilities in addition to previous support for developing and investing in midstream and upstream projects to enhance LNG supply security.

The move for building new LNG storage tanks comes after Japan faced a series of electricity supply crunches when power demand outstripped LNG supplies.

Emergency response

To be prepared for "extremely severe" LNG supply contingency, METI will also propose emergency responses involving state-owned Japan Organization for Metals and Energy Security to secure LNG cargoes in the event of emergency following amendments in relevant laws, the source said.

"While we need to discuss this further, what we have in mind is to respond to extremely severe situations, where global LNG markets face shortages, or Japanese companies facing situations of not being able to procure [LNG] by themselves from an absence of large-scale supply from long-term contracts," the source said.

In the event of such situations, the METI minister will formally be able to request JOGMEC to procure LNG, the source said.

"With this in mind, we will pick JOGMEC's [LNG] procurement sources for emergency," said the source, adding that Italy's Eni is "one of candidates" following the Oct. 6 signing of memorandum of cooperation at Hiroshima.

Japanese companies have shown some reluctance in recent years to commit to new long-term LNG contracts, due in part to the shrinking share of LNG in the country's electricity mix under the current Strategic Energy Plan, the country's principal energy policy, coupled with uncertainty over demand in the years ahead.

Under the current 6th Strategic Energy Plan formulated in October 2021, Japan expects LNG to account for 20% of power supply sources in fiscal year 2030-31 (April-March), compared with a 37% share of LNG in FY 2019-20.

Japan on May 15 launched a series of policy discussions to form a new Strategic Energy Plan by the end of FY 2024-25, in its quest to bolster energy security and accelerate decarbonization.