Keynote Address by Mr.Toshimitsu Motegi, Minister of Economy, Trade and Industry, at the Second LNG Producer-Consumer Conference
September 10, 2013
The Grand Prince Hotel New Takanawa
Your Excellencies, Distinguished Participants
Good morning, and welcome to Tokyo. As the host of this conference, I would like to take this opportunity to extend my heartfelt appreciation to the ministers, government officials, and representatives of international organizations, as well as producers, consumers, and experts in the LNG field, for traveling long distances to take part in this Second LNG Producer-Consumer Conference.
90 % of the countries and regions involved in the LNG market are present in this room. The temperature of LNG is as cold as minus 162 degrees, but I have every expectation that we will have the hottest discussions today.
2.Avoiding High LNG Cost is the Pressing Issue
The LNG price in Japan is about $16.3 per million BTU (British thermal unit), which is fourfold the price in the U.S., where it sells for $3.8 per million BTU. Even after taking into account the costs of liquefying and transportation, the price in Japan remains substantially high.
Looking back on the past year, we have seen the emergence of gas price-linked trade for the first time in Japan. Other new developments include the first joint international procurement in Asia by Chubu Electric Power Company and the Korean gas company KOGAS, as well as more flexible provisions on destinations. This diversification in trade will help to improve market liquidity and mitigate risks in price fluctuations. We must remember, however, that this has only just begun in Japan.
Increases in fuel procurement costs impose a heavy burden on the Japanese economy. The year before last, Japan registered a trade deficit for the first time in 31 years, the first such deficit since the second oil crisis. Last year, this deficit increased to 8.2 trillion yen. Of this expanded figure, about half is a result of the rise in fuel procurement costs. Furthermore, there is pressure on companies to move overseas as they are unable to endure rising fuel and electric power costs. There is strong concern among the public over the surging demand and soaring prices for LNG. Therefore, “avoiding high LNG cost” and “securing stable supplies of more reasonably priced LNG” are priority issues for us.
3.Expanding Cooperation among Consumer Countries
At present, we are witnessing an expansion in cooperation among LNG-consuming countries who share the sense of crisis.
First, Japan has undertaken a joint study with India, the world’s fourth-largest LNG consumer. Experts have discussed ways and means toward a resolution of the Asian premium. Yesterday, I signed a joint statement with India’s Minister of Petroleum and Natural Gas, Mr. Moily, concerning the results of the study and future approaches to the issue.
Second, Europe holds two routes of procuring its supplies: a pipeline and LNG. Europe has been seeking solutions to enhancing market liquidity through requiring more flexible destinations clause in contracts. We are now promoting cooperation in research with the European Commission and we hope to learn much from Europe’s experiences.
Third, in addition to strengthening such government-level bilateral cooperation, the Institute of Energy Economics Japan has proposed the establishment of an International Joint Study Group on LNG that will undertake joint research on issues in LNG markets, tapping into the knowledge of experts at research organizations in the major consuming countries across Asia and Europe. The Ministry of Economy, Trade and Industry welcomes this move.
4.Significant Changes in the World’s LNG Supply
Taking an overview of the world’s LNG supply, one can see that two significant changes are occurring.
Firstly, the greatest difference from the previous year is that the United States is now seeking to establish a new flow of LNG to Asia. This is thanks to increased production of shale gas, which caused domestic prices of U.S. natural gas to fall. In May this year, the U.S. government approved exports through the Free Port Project, from which we anticipate the first U.S. LNG exports to Japan. There are two further LNG projects in which Japanese companies are involved, and we expect their early approval as well. The expected volume of trade from these three projects from 2017 will total 15 million tons per annum, almost equivalent to 20 percent of the total LNG imported by Japan. This will also mean that Japan will be able to procure LNG at prices about 30 percent lower than current prices, even when we take into account liquefying and transportation costs. There are a large number of projects that are seeking approval from the U.S. government, totaling some 230 million tons per annum, which is equivalent to total global LNG demand at present. We welcome LNG exports from the U.S. as an extremely effective method to ensure both a stable supply of energy and a reduction in import costs in the LNG markets in Asia and Europe.
Secondly, additional LNG projects will start up throughout the world in the near future. Projects that are now under construction will start production from 2015, and it is expected that global LNG production capacity will increase by 30 percent by 2018. Furthermore, a substantial number of LNG projects are planned in new frontiers, such as Canada, Russia, and East Africa, whose production capacity adds up to some 600 million tons per annum and which would double the LNG production capacity today. This means that the era of competition has come to suppliers, who have to compete among each other by providing more attractive prices and trading conditions.
In Europe, we are currently seeing a fuel switch from gas to coal. Likewise, if the price of LNG remains high, some of the demand will shift further to other energy sources.
5.Japan’s Serious Approaches
Let us now shift our attention to the efforts and approaches being taken in Japan. Japanese companies importing LNG are currently focusing their attention on how to avoid high LNG costs, and the Japanese government is actively supporting these efforts. Prime Minister Abe, during his visit to the Middle East at the end of August, asked leaders of gas-exporting countries to provide a stable supply of competitive price LNG.
First, we are promoting reforms of the domestic electric power generation system, which consumes 60 percent of Japan’s LNG imports. Government approval is needed to increase electricity fees. As for the procurement price of LNG, which is accountable in determining price cost, we ask power companies to further strengthen their negotiation efforts. In a new assessment policy for contract renewals or new contracts for long-term projects, we have set a ceiling on initial costs that can be passed on to electricity fees. This ceiling will be the lowest LNG procurement price of all the electric power companies. After 2015, we will set a ceiling that partly reflect natural gas linked price. In addition, we will in the future abolish the regulation allowing the cost pass-on mechanism and promote reforms to the electric power system that will ensure a stable supply and improved efficiency through competition. Through these reforms, we will promote increased efficiency at electric power companies with regard to fuel costs.
Second, we will diversify the sources of our LNG supplies. We are supporting Japanese companies’ involvement in new LNG schemes, including exploration and development projects in Russia, Canada, and Mozambique. And upstream participation by Japanese electric power and gas companies is also extremely important. JOGMEC, in addition to enhancing its risk money supply, has established debt guarantees totaling 1 trillion yen for projects that will lead to low cost LNG procurement.
Thirdly, we are actively promoting the diversification of energy sources. Since the accident at the Fukushima Dai-ichi Nuclear Power Plant, 49 power plants have not returned to operational status, leaving just one nuclear power plant in operation. Thermal power accounts for approximately 90 percent of the total amount of electric power, with LNG accounting for 50 percent of that total. Consequently, Japan’s demand for LNG has increased by 20 million tons per annum, or 25 percent from before the accident. The Nuclear Regulation Authority is currently assessing applications from 12 nuclear plants of their safety and, if the plants meet the NRA’s standards, these nuclear plants will be restarted.
We are also promoting measures to clarify environmental assessment procedures required for the introduction of the world’s most efficient coal thermal power generation plants – of which Japan is extremely proud – and reducing the examination period from three years to one year. Through such measures, we expect further introduction of efficient coal thermal power plants.
There has also been a steady increase in the capacity of renewable energy, thanks in part to the introduction of a feed-in tariff system last year. Since April of last year, about 3.4 million kW of energy has been generated from renewable sources, increasing total capacity by 15 percent. And this year, Japan’s solar market is showing steady growth and is expected to surpass that of Germany to become the largest market in the world.
Furthermore, Japan is investing a lot of time and energy into exploiting deposits of methane hydrate in Japanese coastal waters. In March this year, Japan became the first country in the world to succeed in the experimental production of methane hydrate extracted from below the seabed. We will examine the data that has been collected and, by overcoming one task after another, such as reducing the cost of extraction, we hope to establish a technology to commercialize the resource by 2018.
Finally, from this autumn, in coordination with the aforementioned International Joint Study Group on LNG, my ministry will begin to study further ways to secure competitive and stable LNG supply by promoting new types of joint procurement involving multiple LNG importing entities.
With the shale gas revolution in the United States, the doors have opened for a competitive supply of LNG to the market. It is important for producers and consumers to take this opportunity to conduct discussions at all levels.
This LNG Producer-Consumer Conference is a platform for governments, business entities, and leading experts to exchange frank opinions on common issues concerning the LNG market as it continues to grow dramatically. It is extremely worthwhile for us to continue our discussions and deepen our understanding. Japan will continue to support this important conference.
At the IOC general meeting held on September 7, Tokyo was decided to be the host city of the 2020 Olympic and Paralympic Games. We would like to welcome athletes, those who are involved in the Games, and visitors to Japan with our warmest hospitality “omotenashi”. We are ready to offer wonderful cuisine and accommodation, as well as thorough safety measures. I sincerely look forward to your visiting Japan again.
I would like to close my speech by announcing that the three top news stories of the year from Japan in 2013 will be Mount Fuji being chosen as a World Heritage site, Tokyo being selected as the host city of the 2020 Olympic Games, and the success of this LNG Producer-Consumer Conference.
Thank you for your attention.