Executive Summary
Japan is the largest LNG buyer in the world, importing approximately 77 million (77,327,079) tons in 2019, down 6.6 % (tons) from 2018. Its import dollar value in 2019 was approximately $39.8 billion (4.4 trillion yen) and shares approximately 23.4% of the world’s net LNG imports (330 million tons ≈ 467.9 Bcm³). Australia, Malaysia, Qatar, Russia and Brunei are Japan’s major LNG sourcing countries. Since the United States began its LNG export in February 2016, 10.3% of its accumulated volume has been shipped to Japan. The U.S. is growing rapidly as a leading LNG seller and currently is Japan’s 8th largest supplying country. As of May 2020, Japan is the 3rd largest buyer of U.S. LNG, after South Korea and Mexico. LNG will likely continue be a significant policy issue for Japan given its need to secure stable, inexpensive, and relatively clean energy resources.
Current Market Statistics
Noted in the previous Export Resource Guide (ERG) that the Japanese LNG market had been saturated and generally comfortable with having obtained the LNG volume it requires.
Below are the latest LNG import volumes in Japan in 2020 and their comparisons against 2019:
| LNG Import: Japan |
Jan |
Feb |
Mar |
Apr |
May |
| 2020 (MT) |
7,512,604 |
6,642,072 |
7,208,762 |
5,196,188 |
4,579,657 |
| 2019 (MT) |
7,546,925 |
7,350,347 |
7,295,236 |
5,626,846 |
5,567,682 |
| 2020/2019 |
-0.5% |
-9.6% |
-1.2% |
-7.7% |
-17.7% |
Production has fallen in all energy sectors such as fuel oils, electricity, city gas, and LPG due to the economic recession caused by the Covid-19 pandemic, which has also created considerable reduction in LNG imports in the first five months of 2020. Officials at the Government of Japan’s Ministry of Economy, Trade and Industry (METI) told us, however, that the prospects were not as bad, noting that the decline of LNG imports in Japan has not been as severe as in other countries. Still, Japanese LNG imports have been shrinking for some time, with 2019 (77.33 million tons) 6.7 % down from 2018, which was the lowest since 2010. It is too soon to tell how the Covid-19 pandemic will affect Japan’s LNG imports and overall energy plan in the future.
Recent Market Trends (Japan’s LNG Import)
| |
2015 |
2016 |
2017 |
2018 |
2019 |
| Total Local Production |
0 |
0 |
0 |
0 |
0 |
| Total Exports |
0 |
0 |
0 |
0 |
0 |
| Total Imports (million tons) |
85.04 |
83.34 |
83.63 |
82.85 |
77.33 |
| Total Imports (billion $) |
45.55 |
29.27 |
36.03 |
42.80 |
39.80 |
| Imports from the US (million tons) |
157,119 |
0 |
954,438 |
2,494,095 |
3,695,647 |
| Imports from the US (million $) |
62 |
- |
587 |
1,374 |
1,806 |
| US Share (in tons) |
0.1896 |
0.0096 |
1.1496 |
3.0196 |
4.7896 |
| Total Market Size (million tons) |
85.04 |
83.34 |
83.63 |
82.85 |
77.33 |
| Exchange Rates ($: JPY) |
121.05 |
112.10 |
108.66 |
110.40 |
109.02 |
Japan’s LNG Imports 2019 (77 Million)
Best Prospects for U.S. Exporters
U.S. shale-originated LNG exports to Japan began in 2016, and the U.S. is rapidly becoming one of Japan’s most important energy suppliers. Japan is now expected to import billions of dollars of U.S. LNG over the next five years. The purchases will likely involve the major Japanese electric and gas utilities such as Tokyo Gas, Osaka Gas, Kansai Electric Power Company, and Chugoku Electric Power Company, and JERA, which is Japan’s largest power generation company and the largest single LNG buyer in the world. Major Japanese trading firms such as Mitsubishi, Mitsui, Sumitomo, and Itochu also play major roles in Japanese and as global LNG transactions.
U.S. LNG has three unique strengths. U.S. firms can offer a variety of business models that are not currently proposed by other countries; U.S. pricing mechanism is flexible, and not linked with the crude oil price at which most of the Japanese offtakes are bound to purchase under long-term contracts; and U.S. LNG is free from destination clause, which means that a Japanese buyer can easily resell the U.S. LNG to other buyers. However, as Japan values a diverse supplier base, to not become overly dependent on any one supplier or country, Japanese offtakers will be deliberate about changing their sourcing countries, barring unforeseen political events or natural disasters impacting trading partners.
It remains to be seen how conservative business practices of securing energy sources impacts U.S. companies’ desire to rapidly increase LNG exports to Japan.
Market Entry
Japan’s major LNG importers have signed long-term contracts with the Lower 48 States LNG exporters. As of July 2020, five U.S. LNG export terminals - Sabine Pass (LA), Cove Point (MD), Corpus Christie (TX), Cameron (LA), and Freeport (TX) - are exporting U.S.- originated LNG to Japan.
In addition, there were many Financial Investment Decisions (FID) approved (including 3 in the U.S.) in 2019. The Federal Energy Regulatory Commission has approved the construction of many other terminals in the U.S. It is not clear yet whether the current economic recession may adversely affect the existing FIDs and proposed U.S. LNG projects in 2020.
Most of Japan’s LNG imports are under long-term contracts with existing foreign suppliers (see chart from previous page), and these contracts are set to expire by the end of the next decade. The mid and long-term expiration of contracts could open opportunities in the 2020s for the supply of U.S.-made LNG to Japan, either under long-term contracts or in the spot market.
Regulation/Registration Process
U.S. Commercial Service Japan is not aware of any regulatory or registration process issues that may prevent U.S. originated LNG from being exported to Japan. The Japanese practice of procuring LNG, which is known as a “Take-or-Pay” contract, may infringe upon the Anti-Monopoly Act in Japan, as pointed out by some industry experts at the recent U.S.-Japan LNG Workshop in February 2020. Under the contract, Japanese offtakes (electric and gas utilities) are obliged to buy superfluous LNG at prearranged price, and furthermore to resell it to a third party at a great loss. As the price norm of U.S. LNG is based on Henry-Hub plus liquefaction cost, U.S. LNG is said to be far more cost-competitive than the Japan Korea price Marker (JKM). We expect to see lifting such business practices as a good indicator of increasing the business opportunities of U.S. LNG to Japan.
Technical Barriers & Tariffs
There are no tariffs on LNG imports to Japan. USCS Japan is also not aware of any technical barriers on importing LNG to Japan.
Procurement & Tenders
All Japanese LNG procurements are commercial transactions executed by the Japanese gas or electric utilities and trading companies. There are no public tenders on LNG imports to Japan.
Getting Paid/Trade Finance
USCS Japan is not aware of any payment disputes caused between the Japanese offtakers/trading companies and LNG exporters, including U.S. firms.
As for trade finance, under the Asian LNG initiative led by the Japanese government, Ministry of Economy, Trade and Industry (METI), Japanese financial institutions such as the Japan Bank for International Cooperation (JBIC) will take a major role in financing the LNG receiving terminals in South Eastern Asian countries; however, USCS Japan believes that such financial schemes are to assist Japanese contractors that wish to build facilities in Asia, and not directed at U.S. LNG exporters.
These 3rd country developments may create opportunities for U.S. LNG sales, and for U.S. infrastructure development firms.
Best Prospects
USCS Japan believes that there are three primary types of market opportunities for U.S. LNG firms and interests such as (a) The Japanese purchase of LNG produced in the US; (b) Japanese investment in U.S. LNG infrastructure; (c) potentially U.S.-Japan collaboration on 3rd country infrastructure projects that source U.S. LNG.
