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Japan offers $10 billion to support Asian LNG growth

Singapore (Platts)--18 Oct 2017 754 am EDT/1154 GMT


Japan has announced a $10 billion public-private initiative to support the expansion of Asia's LNG markets, as the world's largest LNG consumer aims to develop new demand centers, able to absorb growing global supplies.


  • METI seeks LNG expansion to new regions, markets
  • More 'rational and flexible trade conditions' needed: minister
  • Platts JKM establishes itself as 'confident benchmark'

The initiative will provide financial support to projects supplying LNG to Asia, or supporting demand creation in the region, which already accounts for over 70% of global consumption, Japanese Minister of Economy, Trade and Industry Hiroshige Seko said Wednesday.

As part of the initiative, METI will be providing training through public and private funding for a combined 500 personnel over the next five years, for both LNG producers and consumers, Seko said at the LNG Producer-Consumer Conference, held in Tokyo Wednesday.

"Japan will continue to work towards developing liquid LNG markets in Asia, seek specific actions towards creating LNG demand by new LNG utilization measures such as LNG bunkering, and contribute to building international consensus on the benefits of LNG," Seko said.

LNG imports by emerging Asian buyers

The combination of contractual over-commitment, slowing domestic demand growth and downstream market deregulation is encouraging Japanese LNG stakeholders to support demand growth in other Asian markets.

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This is especially important at a time when the Ministry of Economy, Trade and Industry is leading efforts to eliminate destination restrictions in long-term contracts, which could result in significant volumes of LNG bursting onto the markets.

"I would like to encourage leaders of Asian countries to seriously consider expanded use of natural gas as a choice of smart energy," Seko said.

"Efforts by LNG producers are also essential in expanding demand for LNG...I would like to request LNG producers to think harder on ways to improve the attractiveness of LNG, including proposals of more rational and flexible trade conditions," he added.


JAPAN GLOBAL OUTREACH


The initiative is part of the second phase of METI's LNG market liberalization campaign, aimed at increasing cooperation with global LNG players to promote liquidity, flexibility and transparency in the LNG markets.

After ruling LNG destination clauses were likely anti-competitive, Japan signed an agreement with the EU in July, under which both parties agreed to cooperate to phase out territorial restrictions on resales, already illegal under the EU's competition law.

On Wednesday, Japan signed another agreement with India, aimed at facilitating flexibility in LNG contracts, abolishing destination restriction clauses and establishing reliable LNG spot price indices.

The first phase of Japan's LNG liberalization saw it open up its domestic power and gas retail sectors in April 2016 and April 2017 respectively.

And further liberalization is on its way, with the division of former regional monopoly power-generation plants and transmission and distribution systems by 2020 and the unbundling of natural gas pipeline operations by 2022.

Enhanced liquidity and pricing transparency are key to develop new markets and liberalize existing ones.

For Japan, the ability to mitigate new risks is becoming particularly important, as downstream competition grows and some utilities prepare to enter the trading space in a bid to boost optimization capabilities.

Increasingly, the LNG financial markets are providing an effective hedging and risk management tool, with the Platts JKM derivatives trading experiencing substantial growth in both volume and number of participants.

"LNG swaps trades based on the JKM are now growing five times from the previous year, and as many as 16 cargoes of LNG were traded in July alone," Seko said. "This fact indicates that the JKM has established itself as a confident LNG price benchmark in Asia. Now a global LNG market is being developed."

--Abache Abreu, abache.abreu@spglobal.com
--Eriko Amaha, eriko.amaha@spglobal.com
--Edited by James Leech, james.leech@spglobal.com




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