- Japan is once again drawing attention from liquefied natural gas producers.
- Japan’s energy plan projects power generation will increase by between 12 per cent and 22 per cent from 2023 levels to between 1,100 and 1,200 terawatt-hours in 2040.
Japan is once again drawing attention from liquefied natural gas producers. This is as a result of growing demand from artificial intelligence, higher costs for cleaner energy, and a revised national energy plan, which are driving interest in long-term LNG contracts.
While imports by China, the world’s biggest LNG importer, are expected to fall this year, buyers in number two Japan are securing long-term supply deals again, including a potential landmark deal with Qatar.
Japan’s LNG imports declined over the past decade as nuclear reactors shut down after the Fukushima disaster, came back online, and renewable energy sources expanded.
Data centres are expected to use enormous amounts of power to sustain the AI boom, while Japan’s 7th Strategic Energy Plan, released in February, identified gas as a realistic transition fuel for the nation’s goal of zero net carbon emissions by 2050 and “an important energy source even after carbon neutrality.”
“We had expected that electricity demand in Japan would decline, but the growth of data centres is bending that curve,” Yukio Kani, global CEO of JERA, the country’s top power generator and LNG buyer, noted. “If we want quick solutions for data centres, Japan needs LNG. That is one external change.”
Rising costs have also dimmed prospects for alternative fuels like hydrogen and ammonia, Kani said.
“Until two or three years ago, we expected faster development of ammonia, but now we have to pause,” he said. “So we’ve been shifting back to LNG over the past year or so.”
In Japan’s energy plan, the Ministry of Economy, Trade and Industry forecast annual LNG demand would fall to between 53 million and 61 million tons in 2040 if it met its emissions reduction target, from 66 million tons last year.
But in a risk scenario where decarbonisation technologies lag, METI forecasts demand could instead rise to 74 million tons.
The plan calls for public-private cooperation to secure long-term contracts for the super-chilled fuel, given price volatility and supply disruption risks. Under Japan’s previous decarbonisation-focused energy plan, gas importers had hesitated to sign long-term contracts.
The new plan makes it easier for buyers to commit to long-term contracts, said Takashi Uchida, chairman of the Japan Gas Association and top city gas provider Tokyo Gas.
“It’s very clear that LNG has a role to play as a transition fuel, and it’s now firmly still in the mix for this investment cycle,” said Lachlan Clancy, energy partner at law firm Herbert Smith Freehills Kramer.
Japan has also been auctioning new gas-fired power capacity mainly to replace ageing coal power plants, awarding 7 gigawatts (GW) over the past two years, according to the Organisation for Cross-regional Coordination of Transmission Operators, Japan.
In March, the organisation projected LNG-fired capacity would rise to 85.75 GW by 2034 from 79.98 GW in 2024.
Japan’s energy plan projects that power generation will increase by between 12 per cent and 22 per cent from 2023 levels to between 1,100 and 1,200 terawatt-hours in 2040. Consumption by Japan’s data centres will soar 80 per cent, or about 15 TWh, by 2030, the International Energy Agency forecasts.
To feed this growth, Morgan Stanley sees Japan’s LNG imports rising to 78 million tons in 2030 as gas-fired power generation rises amid high costs for generating solar and wind power.