Japan's new METI minister urges long-term LNG contracts for energy security

Japan considers securing long-term LNG supply contracts linked to stable pricing as "very important" for the country's energy security, newly appointed Minister of Economy, Trade and Industry Yoji Muto said Oct. 3, with METI effectively taking a step further in urging Japanese companies to secure long-term deals.

"We see LNG as an essential fuel needed for transition as it has relatively low emissions," Muto said in a group media interview that included S&P Global Commodity Insights.

Muto's remarks were made in response to a question about the direction of policy support for stable LNG supply as Japan pursues the balance of decarbonization and energy security as part of discussions for a new Strategic Energy Plan, the country's principal energy policy.

For METI, getting the importance of long-term LNG contracts incorporated into the next Strategic Energy Plan will provide a key basis for ensuing policy support.

Prime Minister Shigeru Ishiba appointed Muto, who previously served as state minister of economy, trade and industry, as METI minister on Oct. 1, when his new cabinet was launched. Muto most recently served as secretary general of the research commission on comprehensive energy strategy at the ruling Liberal Democratic Party.

"In the long-term, it is greatly important to proceed with decarbonization. On the other hand, the security of fossil fuel supply is necessary for stabilizing existing electric power," Muto said.

"We believe it is very important to procure LNG through the signing of long-term contracts linked to stable pricing."

Muto's remarks are a step further for METI in that it is now effectively urging Japanese companies to conclude long-term LNG supply contracts for energy security.

"From this perspective, we will need active support from resource diplomacy and JOGMEC [Japan Organization for Metals and Energy Security], among others," Muto said.

"Our current principle is to work firmly on the security of stable supply of LNG, which has relatively low CO2 emissions for achieving both decarbonization and stable energy supply going forward."

Policy response

Muto's remarks came just days before the LNG Producer-Consumer Conference 2024, which will be co-hosted by METI and the International Energy Agency, in Hiroshima Oct. 6, with the role of LNG for energy security and as a lower-carbon transition fuel among the focus points.

Stable LNG supply through long-term contracts as means of securing energy security is likely to be among the topics to be discussed at the LNG-PCC in Hiroshima, according to a joint discussion paper prepared by METI and the IEA.

The LNG-PCC will take place alongside the Oct. 7 general assembly of the International Group of Liquefied Natural Gas Importers, known as GIIGNL, in Hiroshima, where G7 leaders addressed in May 2023 the need to accelerate the phase-out of Russian energy dependency, including through energy savings and gas demand reduction, in a manner consistent with the Paris commitments.

The G7 Hiroshima communique also noted the important role of increased deliveries of LNG and acknowledged investment in the sector. The G7 Apulia leaders' communique in June endorsed those views.

The latest policy development comes as METI's director-general of natural resources and fuel, Hajime Wakuda, told Commodity Insights in July that the ministry intends to address ways to help support Japanese companies in committing to long-term LNG contracts as the country considers its new Strategic Energy Plan.

The remarks come as Japanese companies in recent years have shown some reluctance to commit to new long-term LNG contracts, due in part to the shrinking share of LNG in the country's electricity mix under the current Strategic Energy Plan, coupled with uncertainty over demand in the years ahead.

Under the current 6th Strategic Energy Plan formulated in October 2021, Japan expects LNG to account for 20% of power supply sources in fiscal year 2030-31 (April-March), compared with a 37% share of LNG in FY 2019-20.

"A specific in the process of discussions would be to make clear the country's approach in the Strategic Energy Plan," Wakuda said. "While we recognize such issues [of a reluctance to commit to long-term LNG contracts], we believe we need to consider ways to respond to that."

Japan on May 15 launched a series of policy discussions to form a new Strategic Energy Plan by the end of FY 2024-25, in its quest to bolster energy security and accelerate decarbonization.