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One key theme of the 9th annual LNG Producer-Consumer
Conference—held by Japan's Ministry of Economy, Trade and
Industry (METI) and the Asia Pacific Energy Research Centre (APERC)
on 12th October 2020—was the role of LNG in tackling the global
climate challenge. Japan is seeking opportunities to use its
position as the world's largest buyer of LNG to address this in two
ways: to help drive sustainable growth of LNG supply and demand,
particularly in emerging markets where it can help reduce emissions
compared to oil and coal, and through decarbonization of the LNG
value chain. The two panel sessions in the conference discussed
these topics, bringing together players across the value chain.
Industry leaders representing a wide range of stakeholders gave
statements providing context to the discussions. IHS Markit's Vice
Chairman Daniel Yergin commented on the historical accomplishments
and global expansion of the LNG industry through a video message:
"In 1959, the Methane Pioneer sailed from Louisiana to England
carrying the very first oceanic shipment of LNG, and a decade later
in 1969, the first cargo arrived in Japan. In 2000 there were 12
producers and 11 imports, and today there are 20 producers with 43
importers."
The first panel session—chaired by Ken Koyama, Chief
Economist and Senior Managing Director of the Institute of Energy
Economics, Japan (IEEJ)—focused on pricing mechanisms favorable
for sustainable growth of LNG supply and demand. Even before the
impact of the COVID-19, the global LNG industry was entering a
period of surplus as new supply capacity was coming online faster
than it could be absorbed. However, the pandemic led to lower
LNG—and overall energy—demand, leading to a greater
overhang of supply and record-low prices. Combined with the oil
price crash from the first half of the year, these market
conditions led to delay in final investment decisions for new
liquefaction projects, as international oil and gas companies were
forced to cut capital expenditure and reassess future demand
expectations. In this context, it has become increasingly important
to find the right pricing mechanisms needed to provide security for
project developers as well as encouraging greater demand for LNG in
emerging and established markets.
Diversity of pricing mechanisms beyond oil indexation is
important for many players, seeking prices that better reflect
local demand and supply conditions. The key question is whether
financial institutions will be willing to lend to new liquefaction
projects where the development is underpinned by Asian spot prices.
A recent IHS Markit paper explores how the commercial model for
developing new LNG projects can be reshaped to attract capital
investment[1].
The second panel session—chaired by Michael Stoppard, Chief
Strategist for Global Gas in IHS Markit—explored how players
across the LNG value chain are seeking to decarbonize the fuel. One
of the topics explored was how sellers are working with buyers to
create carbon-neutral LNG. For example, Japan's largest gas utility
Tokyo Gas highlighted its use of carbon neutral LNG to achieve its
net zero carbon dioxide goals. The company has announced at least
three contracts with factories, office complexes and hotel to
supply carbon neutral city gas towards the corporation's
sustainability targets.
During the conference, Japan reaffirmed its commitment to LNG
and outlined the next steps in its strategy. Japan has set a target
to handle 100 MMt by 2030, including domestic demand and supply to
emerging markets, and to work towards producing Hydrogen and
Ammonia through utilizing carbon recycling and CCS. Japan Oil, Gas
and Metals National Corporation (JOGMEC)—the state-owned
company that works to secure stable supply of energy—has
amended its rules to allow the financing of LNG reloading and
import terminals outside Japan. The government is currently working
to revise its LNG Development Strategy, originally devised in 2016,
to address decarbonization. This will continue to be a key theme in
other forthcoming plans, including the 6th Basic Energy Plan which
details are due to be disclosed in 2021.
