US LNG shipments to Japan set to grow though at a slower pace than American coal exports

Monday, 17 June 2019
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Japan, the world’s largest liquefied natural gas importer, still managed to purchase more than 210 million short tons of coal on foreign markets in 2018, making it the world's third-largest coal importer after India and China as the Japanese switch to using more LNG and renewables has slowed markedly since 2011.

Japan continues to use steam coal to fuel one-third of its electricity generation and metallurgical coal for raw steel production.

The continued high proportion of Japanese coal use was highlighted in a report just published by the US Energy Information Administration.

Japan imports almost 99 percent of the coal it consumes. Australia is Japan’s primary coal supplier, exporting 128 MMst, or 61 percent, of Japan’s demand in 2018.

Indonesia (32 MMst), Russia (21 MMst), the United States (13 MMst) and Canada (9.6 MMst) accounted for another 35 percent of total Japanese coal imports.

Japanese LNG imports from the US are set to increase in 2019 as the Asian nation has purchased volumes and tolling capacity at the growing build-out of American liquefaction and export plants.

US LNG appeals to Japanese utilities because of its lower costs and will replace cargoes from other regions as long-term contracts expire.

However, US thermal coal exports to Japan have grown even faster than LNG with a 20 percent rise in Japan’s coal imports from the US logged in 2018, while 2019 exports as of March were already 38 percent higher than in all of 2018.

Japanese LNG imports through its network of 35 regasification terminals have stalled over the past four years after reaching a peak of 85.04 million tonnes in 2015.

They then edged lower or were little changed at 83.34MT in 2016, 83.63MT in 2017 and 82.85MT in 2018.

While Japanese LNG imports rose by 0.3 percent in April 2019, they had previously dropped for five straight months and 2019 is likely to see little LNG import growth from Japan.

Indeed, many analysts expect China to overtake Japan as the world’s largest LNG importer within about seven years.

Coal now accounts for about one-third of Japan’s electricity generation.

“In 2018, Japan’s utilities produced an estimated 317 billion kilowatt hours of electricity at more than 90 coal-fired power plants,” said the US report.

“Coal’s share of electricity generation in Japan was higher in 2018 than it was before the 2011 Fukushima nuclear accident,” stated the EIA.

“In 2010, coal accounted for 25 percent of Japan’s electricity generation, and nuclear generation accounted for 29 percent,” said the EIA.

The US report noted that prior to 2011, Japan’s Ministry of Economy, Trade and Industry (METI) had planned to reduce coal’s generation share by more than half by 2030, intending for nuclear power to offset coal plant retirements.

The plan included increasing the nuclear generation share in Japan’s electricity mix to 50 percent by 2030.

“However, as a result of the Fukushima accident and subsequent suspension of Japan’s nuclear fleet, METI now projects a future energy mix of 20 percent to 22 percent nuclear, 22 percent to 24 percent renewables, 26 percent coal, and 27 percent natural gas through 2030,” said the EIA.

Japan’s utilities plan to construct 20 gigawatts of coal-fired electric power generation capacity in the next decade.

“The scope of development will depend on how many suspended nuclear reactors resume operation. Increased competition in Japan’s electricity market may also have an effect as new non-coal entrants compete for market share,” explained the US report.

“New coal plant development also depends on whether the Japanese government will grant environmental approvals to planned coal-fired power projects, given the country’s intention to reduce carbon-dioxide emission levels by 26 percent by 2030,” added the EIA.

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