Japan urges greater LNG trade flexibility, cleaner use: METI minister

Tokyo — Japan's Minister of Economy, Trade and Industry, Hiroshi Kajiyama, called on the LNG industry on Oct. 12 to increase its flexibility of trading and promote cleaner use of the fuel amid rising demand in Asia.

"Asian countries' LNG imports are expected to expand full steam ahead amid rising expectations LNG will be a stable energy source and a means of both tackling climate change and pursuing economic growth," Kajiyama told the online LNG Producer-Consumer Conference 2020.

While Japanese and other Asian LNG importers' high ratio of oil indexation in their medium-to-long-term LNG contracts is keeping their import prices low given then low oil price, Kajiyama warned of a potential risk to stable LNG supply in the years ahead should the current situation cause upstream investment to stagnate.

"In order to eliminate such a risk, we need to establish a more global LNG market with flexibility and depth by persuading various players to enter the market by increasing the attractiveness of LNG," Kajiyama said.

A greater diversity of LNG trades through introducing various price benchmarks other than oil indexation to reflect supply and demand of gas and LNG, a further relaxation in destination restrictions, the creation of a "fair price review" mechanism in medium- and long-term contracts would be important, Kajiyama said.

"These efforts will be win-win for both producers and consumers because it will ultimately increase the number of medium- and long-term contracts," he added.

Cleaner use

In addition to efforts to boost diversity and flexibility in LNG trading, Japan, the world's largest importer of LNG, was stressing the need to expand its use for decarbonization, Kajiyama said.

Given the need to make the greater use of LNG cleaner to help global decarbonization, Japan would "significantly review" its strategy for the development of the LNG market announced at the G7 in 2016 to reflect a new era, Kajiyama said.

Speaking separately at the conference, METI's director-general of oil, gas and mineral resources, Ryo Minami, said that "a major paradigm shift" was underway in LNG because of climate change and the coronavirus pandemic.

"We will promote the decarbonization of the entire LNG value chain," Minami said. "Furthermore, [sometime] towards 2050, we will take up the challenge of producing hydrogen and ammonia from LNG by utilizing carbon recycling and CCS [carbon capture and storage]."

Recovering demand

"While LNG demand is decreasing temporarily as a result of COVID-19, we are barely seeing any forecasts of demand dropping sharply between now and 2030," Kajiyama said, citing strong growth in Asia.

International Energy Agency Executive Director Fatih Birol told the conference the IEA expects global gas demand to recover to its pre-pandemic level by next year, led by growth in LNG demand.

"We see the gas demand is growing since June and we expect that by next year global gas consumption will go back to the level we have seen before the crisis," Birol said.

Birol added that the IEA currently sees global gas demand in 2020 shrinking about 3%, "which is the first time in the history of the gas industry ever." This is a slight upward revision from its expectations of a 4% fall in June.