INTERVIEW: Japan must address 20 mil mt/year gas supply gap in FY 2040-41: former ANRE head

Japan's draft 7th Strategic Energy Plan, the country's principal energy policy, has signaled a need for the major LNG importer to be better prepared for a potential gas supply-demand gap of around 20 million mt/year in fiscal year 2040-41 (April-March) amid technological uncertainty over decarbonization, the former head of the country's Agency for Natural Resources and Energy told S&P Global Energy.

Japan is in the midst of finalizing the draft plan, under which it signals the country's gas supply could either fall or rise in FY 2040-41, depending on scenarios meeting a 73% greenhouse gas reduction target and a scenario with the slow introduction of decarbonization technologies.

Experts surveyed by Energy estimate that Japan's natural gas in primary energy supply will be in the 54 million-74 million mt range in FY 2040-41, based on their calculations of the country's primary energy supply of gas of about 54 million-61 million mt under 73% greenhouse gas cut-aligned scenarios for the fiscal year, as well as gas in primary energy supply standing at about 66 million-67 million mt in FY 2022-23.

"Speaking of a reality with no straightforward pathway as well as unclear about how CCS [carbon capture and storage] will proceed, this supply gap might be inevitable, considering the fact that LNG has been in the spotlight as transition energy that emits half of CO2 for coal-fired thermal power," Shin Hosaka, the former commissioner of the ANRE at the Ministry of Economy, Trade and Industry, said on the sidelines of the 43rd JCCP International Symposium in Tokyo Jan. 29.

"In the event CCS turns out to be a conventional and usable technology to some extent even taking into account associated costs, gas would considerably be the main force to a certain degree," said Hosaka, who was in charge of formulating the 6th Strategic Energy Plan in 2021 as the ANRE commissioner.

Under the 73% GHG cut-aligned scenarios for FY 2040-41 in the draft Strategic Energy Plan, the primary energy supply of natural gas is at around 80 million-90 million kl, and at about 110 million kl, or 74 million mt in another scenario with slower-than-expected progress in introducing decarbonization technologies such as renewable energy, hydrogen, and CCS. This compares with 100 million kl of natural gas supply in the primary energy supply in FY 2022-23.

The natural gas in the primary energy supply of 74 million mt in FY 2040-41 underlined the country's need for a long-term and stable LNG supply. However, it could also send mixed signals to the industry as the country's proposed share of thermal power in Japan's power generation mix will plunge to 30-40% in FY 2040-41 from 68.6% in FY 2023-24.

Balancing act

Hosaka, who was most recently METI's vice minister for international affairs until June 2024, said that Japanese LNG importers would likely need to consider ways to fill the potential gap in gas supply in FY 2040-41.

"In other words, around 50 million mt[/year of gas supply] could have destination restriction clauses [in LNG contracts] because of its expected certainty [of the volume] but it could be seen highly risky by private companies to commit on the rest of incremental volumes with destination clauses," Hosaka said.

"In that case, there could be pursuing a combination of [LNG] supplies with or without destination restrictions as a practical solution," said Hosaka, adding that the ANRE would also need to take into account the risk of a potential shortage in securing finance from banks for supply of more than 50 million mt/year.

Asked about the prospects of Qatar in Japan's LNG import portfolio, Hosaka said: "It would be almost unthinkable not to have [supplies from] Qatar considering its spare capacity for production" as well as for its LNG production growth.

QatarEnergy announced in February 2024 a new expansion of its LNG production capacity, with the target raised to 142 million mt/year by the end of 2030. The increase compares with 127 million mt/year planned by 2027 from 77 million mt/year currently.

"Considering stable supply and diversification perspectives, it would be somewhat unimaginable for Qatar's [LNG supply] falling to zero for the ANRE's diversification viewpoint," he said.

"We must not forget that it was Qatar that helped [Japan] with a significant production boost after initially enduring with [supplies from Russia's] Sakhalin 2 in the wake of the Great East Japan Earthquake [offshore Fukushima in March 2011]."

Japan's existing Qatari LNG contracts are set to expire around the end of the decade, with Kansai Electric's 500,000 mt/year contract ending in 2027, followed by JERA's 700,000 mt/year contract in 2028, and Tohoku Electric's 180,000 mt/year contract in 2030.

Japanese companies in 2021 allowed a total of more than 7 million mt/year of Qatargas 1 LNG offtakes to expire, amid disagreements over contractual flexibility as well as uncertainty over Japan's future LNG demand due to its 2050 net-zero target.

Commenting on the prospects of Sakhalin 2 LNG imports, Hosaka said that Japan would continue making efforts to maintain supplies from Russia's Far East for energy security.

At the JCCP conference, Hosaka revealed that it was he who asked then-Japanese Prime Minister Fumio Kishida to negotiate with the US and other G7 members to be able to maintain Japan's Russian LNG imports following Russia's invasion of Ukraine in 2022.

Japan imported 2.87 million mt of LNG from Qatar in 2024, accounting for 4.4% of the total LNG imports of 65.89 million mt, with LNG imports from Russia accounting for 5.68 million mt, or 8.6% of the total imports in the year, according to data released Jan. 30 by the Ministry of Finance.