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INTERVIEW: JERA sees Asia as potential LNG demand source as it tackles decarbonization

Highlights

Looks at Asia as potential LNG sales outlet for balancing its supply

Might handle same amount of LNG if scenarios derail in Japan

Eyes FIDs for ammonia projects with Yara, CF Industries in about 1.5 years

  • Author
  • Takeo Kumagai
  • Editor
  • Claudia Carpenter
  • Commodity
  • Coal Electric Power Energy Transition LNG Oil Shipping

Japan's largest power generation company JERA is tackling the dilemma of ensuring stable energy supply while proceeding with decarbonization but the company considers Asia as a potential LNG demand source should a surplus develop in its own operations.

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"It is awfully difficult to achieve these three -- sustainability for cutting CO2; affordability, or payable for everyone; and stability, or energy security, which is under the spotlight in the midst of such situations over Ukraine," Chairman and Global CEO Yukio Kani said in an interview with S&P Global Commodity Insights.

"However, I believe this is the essence of the world energy issues," said Kani, who took the helm of JERA's global operations April 1 at a time when the company is ensuring immediate energy supply despite concerns surrounding Russia's invasion of Ukraine, while striving for decarbonization.

JERA, which currently handles 35 million mt/year to 37 million mt/year of LNG, finds it arduous to foresee its LNG handling volume in the mid to long-term because of demand uncertainty, Kani said.

JERA is not alone with uncertainty about the LNG demand outlook in Japan, where companies are increasingly finding it difficult to commit to long-term LNG supply commitments with prospects of declining domestic demand, coupled with approaching 2050 carbon neutrality targets.

Asia potential

"We are currently wondering about this honestly speaking, but one thing I can say is that we are not only looking at JERA but also looking at Asia as well," Kani said of the company's prospective LNG handling volumes.

"For instance, we are working to drive decarbonization with players in Asia," he said, referring to the company's business developments in the Philippines and Bangladesh.

In the Philippines, JERA has been working with Aboitiz Power, in which it has a 27% stake, to consider ways to help decarbonize the company's power generation, through such steps as including the use of LNG, with an eye to introduce "zero-emission thermal power generation" by using such fuels as ammonia and hydrogen.

Together with Aboitiz Power, JERA is also jointly considering development of LNG-to-power projects. Aboitiz Power also aims to expand its power generation capacity to 9.2 GW and achieve a 50:50 clean energy and thermal capacity mix by 2030 from steps including the installment of a 1 GW gas-fired power capacity using LNG.

In its talks with Aboitiz Power, Kani said JERA had recommended the company not to install new coal-fired power plants and introduce LNG as a "balancer" to maximize introduction of intermittent renewable energy, as well as suggesting ammonia as means to decarbonize coal-fired power generation.

In another development, JERA said April 27 it has agreed with Summit Corp., a subsidiary of Summit Power, in which the Japanese company has a 22% stake, to collaborate on developing an LNG storage and regasification facility, and the long-term supply of LNG to Bangladesh.

The move comes as JERA has been working with Summit Power in pursuit of decarbonization opportunities and collaborating to develop a decarbonization roadmap.

"In the event of facing no need [of LNG supply] from our long-term contractual purchase, we might be able to use that [in Asia]," Kani said. "This is easy to say but it would be going more smoothly should such collaborations extend to the greater Asia."

Japan uncertainty

Speaking of its mid-to-long term handling volume of LNG, Kani said that variables in the energy situation in Japan are creating uncertainty and causing a wide range of the volume in its outlook.

"Speaking of Japan, we might unexpectedly see an increase in demand," Kani said, referring to potential power demand arising from such moves as building data centers and semiconductor plants and slower than expected expansion of renewables in the country.

"Of course, if renewable energy is being introduced very smoothly, nuclear power is restarted and the power demand is not growing, it would decrease LNG [demand] as a result of addition and subtraction," Kani said. "If not, we would need around the same amount [of LNG] today."

Under the Strategic Energy Plan approved in 2021, Japan expects renewable energy to account for 36%-38% of the country's electricity generation mix in fiscal year 2030-31 (April-March), nuclear power at 20%-22%, LNG at 20%, coal at 19%, oil at 2% and the introduction of 1% hydrogen/ammonia.

"Now we are seeing great changes [in demand] over a year or two and even on a monthly basis," he said. "The bad news is that we are now seeing fluctuations in daily demand at a level, not comparable to the past because of increasing renewable energy supply."

In response to such demand fluctuations, JERA is working on various ways to increase its flexibility in its LNG supply chain from its own upstream gas field participation, having an LNG carrier fleet and trading functions, Kani said.

Ammonia projects

JERA, meanwhile, is working to introduce 20% co-firing of ammonia at the 1 GW No. 4 Hekinan coal-fired unit during FY 2027-28, with the company having awarded in January Norway's Yara International and US-based CF Industries in its tenders seeking up to 500,000 mt/year of fuel ammonia from long-term contracts.

The joint developments each cover an over 1 million mt/year blue ammonia project, which Yara and CF Industries are considering separately to develop in the US Gulf Coast region.

Asked about its outlook of potential joint ammonia projects, Kani said: "We are about to enter the front-end engineering design (FEED) work with Yara and CF Industries separately.

"Considering 2027, we expect to take a final investment decision in about one year and half after spending a little over a year for FEED."