Japan LNG Supply Chain Developments
Recent developments in Japan’s LNG supply chain, including Russia’s war in Ukraine and resulting European market fluctuations, have led to opportunities for U.S. independent LNG suppliers to increase exports to the world’s largest LNG importer, Japan. The Japanese LNG market is facing the dual shock of a supply/demand crunch and rising LNG prices.
CS Japan is hearing from its energy industry contacts that they would like to import more U.S. LNG; however, current supply chains favor exports to European countries. This increased demand means that U.S. LNG exporters, who have typically made sales via short-term contracts or spot market prices, can now take advantage of more favorable long-term offtake agreements with Japanese energy companies who, due to a market saturated with such contracts, have in recent years been hesitant to enter into more. For example, Tokyo Electric Power Company’s (now merged into JERA with Chubu Electric Power) average LNG purchase contract period is 19.3 years.
After being passed by China in 2021, Japan is once again the world’s largest LNG importer as of August 2022. The country has imported 4.3 billion metric tons—or approximately 10 percent—of its LNG from Russian suppliers this year. Unlike other energy sources (i.e., oil and coal), it is difficult for Japan to find alternative LNG sources, and filling the void that would result from cutting imports of Russian LNG would be a significant challenge. This supply concern led the Japanese government (GOJ) to take the controversial step of encouraging Japanese firms Mitsui & Co. and Mitsubishi Corporation to continue as investors in the Russian Sakhalin 2 gas project. It remains to be seen, however, whether that decision will undercut Japan’s overall energy security policies. Other than Sakhalin 2, CS Japan is unaware of any other decisions taken to increase LNG imports. For the first time in history, the GOJ has set up a special team to protect against potential gas shortages this coming winter (Japan has long established similar schemes to avoid electricity blackouts).
CS Japan is ready to assist U.S. LNG suppliers in connecting with Japanese LNG offtakers. Please contact Commercial Specialist Takahiko Suzuki at office.tokyo@trade.gov for more information.