[Premium] Japan's LNG Imports To Drift Lower, Despite Economic Growth: IEEJ

Japan’s economy is expected to grow to early 2019 but LNG imports will decline over that period, according to the main forecast of a report by think-tank, Institute of Energy Economics Japan.

IEEJ’s reference case shows that LNG imports, having peaked at 89.1mn metric tons in the year from [fiscal year] April 2014 to March 2015 before settling lower at 84.7mn mt in the 2016-17 year, are forecast to decline further to 82.1mn mt in 2017-18 and to 80.3mn mt in 2018-19.

While oil demand will also fall over the two years to March 2019, and coal and hydro-electricity supplies will remain relatively constant, IEEJ forecasts a resurgence of Japan’s nuclear power generation – but certainly not to its pre-2011 level.

Nuclear generation was zero in 2014-15, following the deadly tsunami of March 2011 and resultant Fukushima Daiichi nuclear meltdown. But it reached 18.1 terawatt-hours (TWh) in 2016-17 and is forecast to reach 55.6 TWh in 2017-18 and then 65.6 TWh the following year (2018-19), representing a 7% share of the power generation mix with ten reactors in operation by March 2019.

The prognosis comes from IEEJ’s Economic and Energy Outlook of Japan through FY2018, published July 25, which also forecasts that the economy will grow by over 1% for four consecutive years to April 2018-March 2019, which, if the forecast is accurate, will be the first time this growth will have happened since April 2003-March 2008.

Despite a slowdown in exports in 2018-19, IEEJ forecasts that the Japanese economy will continue to grow by 1.1% that year – after forecast growth of 1.4% this year – “due to firm growth in domestic demand greatly influenced by Tokyo Olympics-related investment.” Tokyo is hosting the Summer Olympics in 2020, 56 years after last having hosted it in 1964.

The report forecasts that city gas sales in Japan will reach a record high in 2017-18, up 1% year on year, fueled by industrial demand, and that such sales will continue to rise in the year 2018-19.

But the combination of a resumed nuclear and increased renewable generation will reduce the power sector’s demand for LNG.

Alternative scenarios based on no, low and high nuclear outputs

IEEJ though acknowledges considerable uncertainty over how many nuclear reactors are allowed to restart. Indeed it also publishes a ‘zero case’ of no nuclear plants operating in March 2019, a ‘low case’ of just the existing five reactors staying in operation by then, and a ‘high case’ of 17 in operation by March 2019 that by then would be generating 1.5 times more than the reference case – so 10% of Japan’s electricity.  

IEEJ chief economist Ken Koyama noted in his follow-up August 10 paper that in the ‘zero and low nuclear’ scenarios, LNG imports would rise sharply to 86.8mn mt and 83.7mn mt respectively in April 2018-March 2019, whereas in the ‘high nuclear’ scenario they would slip back to 76.7mn mt.

Koyama’s paper said IEEJ’s assumptions are based on average Japanese import prices of $7.70/mn Btu in April 2017-March 2018, and $7.60 the following year, as against $7 in the year 2016-17. To access the full papers, please follow the two links to the IEEJ studies in the article above.

Mark Smedley