JERA sees vacuum purchasing of spot LNG as 'worst-case scenario': Global CEO

Japan's largest power generation company, JERA, sees a shortage of LNG supply relative to demand and the vacuum purchasing of spot LNG as "the worst-case scenario" over the next five to 10 years amid changing energy market dynamics, Global CEO and Chairman Yukio Kani said.

Asked about JERA's biggest risk in the next five to 10 years during a Sept. 9 session at the Gastech conference in Milan, Kani said, "With no natural resources in Japan, the worst-case scenario is that we underestimate LNG demand growth, we don't secure LNG and have to go to the market to buy spot cargoes."

"If the market is so tight that [would have] a devastating impact on our economy," Kani said, adding that JERA prefers to take a long position and bear the risk of overcommitment rather than a short position because of its optimization and shipping capabilities.

"So we need to take a risk first, and then we need to manage it if our demand is not as large as we expected," Kani said.

"So if we don't need LNG and demand is lower than expected, we sell some," he added. "That kind of volatility is increasing in the long term, and within [a] year, the seasonality of LNG demand is greater than ever."

JERA handled about 35 million metric tons per year of LNG in fiscal year 2024-25 (April-March), consuming roughly 22 million mt of LNG for thermal power generation during the same period. The company also purchased 5 million mt of spot LNG in FY 2024-25.

Expiring contracts

Kani's comments came as he said June 27 that JERA sees a need to secure 16 million mt/y of long-term LNG contracts in the 2030s.

"Looking at the 2030s, about 16 million tons[/year] of existing [long-term LNG supply] contracts will expire," Kani told a press conference in Tokyo on June 27.

"If LNG demand doesn't change much, we will need to significantly replenish our LNG procurement," he said, adding that the company's long-term LNG supply contracts currently total about 25 million-26 million mt/y.

"If electricity demand increases, the situation changes even further," Kani said, adding that the company had recently secured 5.5 million mt/y of LNG from the US Gulf Coast.

"From now until around 2030, about 4 million tons[/year] will be expiring. Contracts will continue to expire, and we will need to renew them continuously. We will be contracting accordingly," he said at the time.

LNG focus

During the Gastech conference, Kani said that JERA is currently focusing on LNG, given "a huge gap" between LNG, ammonia and offshore wind prices.

Given "a huge gap right now," Kani said, "So over the next couple of years, we will really focus on LNG to help support an affordable, stable supply for the country."

While JERA has "a little bit narrowed down the investment into offshore wind and the ammonia side," Kani said that the company sees it as "very important" to continue investing in those green solutions.

"In our case, we expect that in the 2030s, sometime in the 2030s, the environment may change, and offshore wind and green ammonia may become the mainstream," Kani said.

"So we try to keep investing and try to create optionality for the future," he said, describing the offshore wind business as "a very tough business."

"Last year, we decided not to do offshore wind 100% by ourselves, and we agreed with BP to create a 50-50 JV. That JV just started a month ago and is the fifth-largest offshore wind company."

"By having a large-scale platform, we can de-risk the offshore wind project and continue investing into the 2030s. So that is how we keep our way."

JERA and BP have completed the formation of JERA Nex bp, their 50:50-owned offshore wind joint venture, the companies said Aug. 4.

JERA Nex bp combines BP's offshore wind units with those of Japanese power giant JERA, creating a global platform with 1 GW of operating assets, a 7.5-GW development pipeline and an additional 4.5 GW of secured leases.