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INTERVIEW: Japan sees sufficient LNG for winter, but needs consensus on transition finance, says ANRE head

Highlights

LNG stock builds 'satisfactory,' some companies slightly behind

Strategic Energy Plan highly ambitious but 'not unachievable'

Transition finance needs to be accepted as 'realistic solution'

Japan is cautiously optimistic about securing sufficient LNG overall for power generation this winter, but is calling for international consensus on transition finance to ensure its supply in the midterm amid increasing headwinds for upstream development projects, the head of the country's Agency for Natural Resources and Energy told S&P Global Platts.

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"As for the winter [electricity] supply and demand, we are of course concerned given what happened in last January," Shin Hosaka, commissioner of the ANRE at the Ministry of Economy, Trade and Industry, said in an exclusive interview with Platts.

"We have an extremely significant interest and find a need to closely watch the supply and demand on a daily basis this winter," Hosaka said.

Hosaka's remarks came as Japan's power supply-demand balance tightened last January when the country experienced a surge in power demand that forced local power utilities to restrict gas-fired power generation due to low LNG stocks.

This was exacerbated by glitches at coal-fired power plants, low hydropower generation due to droughts, fluctuations in solar power output due to weather conditions, reduced oil-fired power generation capacity, and low nuclear power output.

"In the case of LNG procurements, we believe a certain volume has been secured because of the lesson in last January," Hosaka said. "We recognize that some companies are slightly behind in building stocks, however we think it is satisfactory, speaking of this moment, because inventories are piling up to a certain extent."

Hosaka said he was more concerned about potential unexpected outages at thermal power plants because many areas in Japan will have tight electricity supply capacity, with reserve capacity ratio at the minimum required level, next February.

"We have been repeatedly requesting power utilities make absolutely sure to prevent thermal power plants coming offline like last winter," he added.

Ambitious targets

While ensuring its immediate energy supply, Japan will need to step up its efforts toward its targets of a 46% cut in greenhouse gas emissions by fiscal year 2030-31 (April-March) from the level in FY 2013-14 and for achieving carbon neutrality by 2050, Hosaka said.

"Considering the present circumstances, these targets are extremely high but we put them up as ambitious targets and declare to be striving for in the latest Strategic Energy Plan, unlike three years ago," Hosaka said.

The Japanese cabinet on Oct. 22 approved the Strategic Energy Plan, the country's principle energy policy, which calls for non-fossil fuel power supply sources to account for roughly 60% of the country's electricity mix by FY 2030-31, compared with a 24% share in FY 2019-20.

Under the Strategic Energy Plan, Japan expects renewable energy to account for 36%-38% of the country's electricity generation mix in FY 2030-31 -- with the introduction of 1% hydrogen/ammonia, and 20%-22% nuclear power -- totaling 57%-61% of the non-fossil fuel power supply.

The country also expects the LNG portion to comprise 20% of FY 2030-31 power supply sources, with coal accounting for 19% and oil for 2%, which gives a total of 41% for fossil fuels, compared with 37% for LNG, 32% coal and 7% oil in FY 2019-20.

"We see these are high and ambitious targets but are not necessary unachievable for now," said Hosaka, adding that renewable and nuclear power would play key roles.

Hosaka added that renewable energy has been "favorably growing," with solar power expected to lead the growth further toward FY 2030-31 from possibly having panels installed on unused farmland and roofs of new houses because of increasingly limited suitable hillsides.

Offshore wind power would not contribute to the renewables growth by FY 2030-31, considering the time required to complete environmental impact assessments, Hosaka said.

LNG security

Asked about the potential for LNG use exceeding 20% in Japan's FY 2030-31 power supply source, Hosaka said: "As mentioned we believe the current [power source] mix number is not unachievable on renewable and nuclear power, but of course we need to think about when we cannot achieve it. In that case, LNG procurements will be larger than this and make up the volumes not being achieved in other power sources," he said.

However, Hosaka expressed concern when asked about how Japan will secure enough upstream investment to ensure stable LNG supply in the years ahead.

"This is very difficult and internationally getting extremely tough," Hosaka said of immense difficulty in securing finance, including from major Japanese banks, for upstream gas developments.

"We do need to put the concept of transition into shape internationally in order for international finance to be accepted appropriately," Hosaka said, adding that it will be important for Japan, which needs to find its "realistic solution" for energy transition.

"Unless we have a certain degree of realistic solutions for the transition as a temporary makeshift, we will have a considerable gap between countries blessed with zero emission power sources including renewables and underprivileged countries," he said.