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Japan's JERA may look to diversify LNG supplies amid Australia policy change: Global CEO

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Japan's JERA may look to diversify LNG supplies amid Australia policy change: Global CEO


Any major policy change in Australia could impact Japan, entire Asia

Might explore new LNG supply sources in Africa, Middle East

Secured some LNG cargoes to be prepared for Sakhalin 2 contingency: CEO

  • Author
  • Takeo Kumagai
  • Editor
  • Aastha Agnihotri
  • Commodity
  • Coal Electric Power Energy Transition LNG Natural Gas Oil

Australian policy change could force Japan's JERA to explore new supply avenues, as the largest Japanese power generation company might need to further diversify its LNG sources in the event of a change in cost scenario for fresh investments, its Global CEO Yukio Kani said May 31.

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"What we are paying attention now is about a new investment in particular," Kani said at a press conference in Tokyo. "For instance, if this turns out about covering CO2 emissions from using certificates, this would totally change a cost scenario."

"Then what we could do for LNG is basically that we would need to consider diversifying supply sources once again because of a large purchase [volume] from Australia."

Australia's LNG supply accounts for 42.7% of Japan's LNG imports, by far the largest.

"Traditionally, we have been buying a large volume from Australia because it has been politically stable despite relatively high costs as a stable supplier," Kani said. "However, if it turns out it is not the case suddenly that would change a premise considerably."

Despite JERA's efforts to boost its renewable capacity, should it does not happen in time, the company might need to avert its supply risk from exploring such new supply sources in Africa or the Middle East, Kani said.

"At this point, we do not have a clear answer yet but internally we are having quite serious discussions, honestly speaking," he added.

Australia aims to enforce the Safeguard Mechanism July 1, aimed at cutting emissions at Australia's largest industrial facilities by setting baselines on greenhouse gas emissions for industrial facilities emitting more than 100,000 mt of CO2 equivalent (CO2e) per year, including in oil, gas production and mining.

"We are still in the midst of assessing the impact," Kani replied when questioned on his risk assessment of LNG procurement impact from the Australian Domestic Gas Security Mechanism.

Australia's April 1 enforcement of the ADGSM reform will allow the country to prioritize supplying to the domestic market should it perceive any gas shortages in the country.

Given Australia's position as a major supplier of LNG and coal to Asia, any major policy change could have a "significant impact on Japan but also on Asia as a whole," Kani said.

Australia's recent policy developments have raised supply and investment uncertainties for Japan, which imports over 40% of its LNG requirements from the country, policy discussions at Japan's Ministry of Economy, Trade and Industry showed May 29.

Contingency response

For fiscal year 2022-23 (April-March), JERA had procured a total of around 28 million mt of LNG, of which its spot LNG procurement accounted for a record 7 million mt, with its long-term contractual supply amounting to about 21 million mt, Hisahide Okuda, CEO and COO, told the press conference.

In addition to its total LNG procurement, Okuda revealed that JERA had also secured an unspecified volume of LNG cargoes as part of its contingency response to the supply uncertainty from the Sakhalin 2 project in Russia's Far East.

"In fact, we secured a certain volume of LNG as part of our risk response to the supply uncertainty from Sakhalin in addition to [the total procurement volumes]," Okuda said.

"By basically using JERAGM [JERA Global Markets], we secured cargoes from LNG contracts and various other means," he said, adding that the company had resold them when the cargoes were not needed.

Asked whether JERA would take a similar step in FY 2023-24 as part of a contingency response, Okuda declined to comment.

JERA's spot LNG procurements were significantly boosted in recent years as part of its efforts to ensure stable electricity supply, responding to volatility in its power and supply-demand balance during the summer and winter seasons.