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METI Publicized the Strategy for LNG Market Development at the G7 Energy Ministerial Meeting in Kitakyushu Challenges and Countermeasures toward the Creation of Flexible LNG Market and LNG Trading Hub in Japan

In response to the changes in the supply-demand situation of liquefied natural gas (LNG) including the start of LNG exports from United States and full liberalization of electricity and gas markets in Japan, the Ministry of Economy, Trade and Industry (METI) has compiled the “Strategy for LNG Market Development” regarding future actions to achieve a stable LNG supply with reasonable prices, and made a presentation on the strategy at the G7 Energy Ministerial Meeting.

1. Outline of the report

Japan is the country with the largest demand for LNG in the world, accounting for approximately one-third of total global demand. Japan has regularly been procuring LNG through the pricing system linked to crude oil prices under long-term contracts, and a surge in the procurement costs has presented a significant challenge since the Great East Japan Earthquake.
Meanwhile, the United States and European countries are adopting a pricing system which reflects the actual supply and demand of natural gas, replacing the system mentioned above and the impact of their pricing system is increasing. In addition, while a growth in global LNG demand and a growing amount of LNG exports from the United States, Australia and other countries is expected, Japan will face additional changes in the LNG procurement structure due to the liberalization of domestic electricity and gas markets.
Such changes are considered good opportunities to realize a more flexible and liquid global LNG market. To this end, Japan is expected to improve the environment in which LNG is stably procured at a reasonable price, thereby leading to the stabilization of the LNG supply-demand balance and the suppression and stabilization of the price in Japan.

2. Key points of the strategy

  1. Vision of LNG Trade Japan Should Pursue
    Based on the recent fundamental changes in the LNG market, Japan will attempt to establish a highly fluid LNG market and become an LNG trading and price formation hub sometime in the first half of the 2020s under “Three Fundamental Principles”: [i] private first, [ii] globalism, and [iii] action-oriented.
  2. Specific actions to realize the strategy and the “Three Base Elements”
    1. Enhancement of Tradability
      • Enhancing the efforts towards elimination of destination clauses, e.g., collaboration with other consumer countries
      • Revising the approaches to public financing towards smoothly launching LNG projects
      • Increasing new demand for gas and LNG domestically and internationally, e.g., introducing fuel cells and LNG-fueled trucks, providing support for introducing LNG-related infrastructures into the Asian region, and holding policy dialogues
      • Engaging in the initiatives for facilitating increasingly efficient operation of LNG tankers e.g., accelerating the procedures for checking consistency with specifications
    2. Creation of a price discovery mechanism reflecting supply and demand
      • Maintaining necessary communication and dialogues with Price Reporting Agencies, toward the establishment of price indices which reflect supply and demand of LNG in Japan based on sound competition
      • Providing necessary support for the efforts related to forward transactions of LNG at the Tokyo Commodity Exchange
    3. Open and sufficient infrastructure development
      • Formulation of rules concerning third party access to LNG terminals, which is underway as a part of the Gas System Reform., Information disclosure will also be discussed further from the perspective of developing a flexible and liquid LNG market.
      • Appropriate institutional measures and policy incentives should be discussed immediately toward sufficient development of LNG-related infrastructures, e.g., wide-reaching pipelines and underground gas storage facilities

3. Future actions

Aiming to realize this Strategy, the Ministry of Economy, Trade and Industry will make concerted efforts along with the private sector by taking advantage of the LNG Producer-Consumer Conference and other opportunities.

Reference

Release date

May 2, 2016

Division in charge

Petroleum and Natural Gas Division, Natural Resources and Fuel Department, Agency for Natural Resources and Energy

Ministry of Economy, Trade and Industry1-3-1 Kasumigaseki, Chiyoda-ku, Tokyo 100-8901, Japan Tel: +81-(0)3-3501-1511
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