China is expected to overtake Japan as the largest LNG importer in 2022

China is expected to overtake Japan as a major importer of LNG in 2022, according to a new report by wood Mackenzie. Compared with 2018, Japan's LNG imports are expected to decline by 12% to 72.8 million tons (mmtpa), while China's imports will increase by 37.5% to 7.41 billion tons / year. However, WoodMackenzie predicts that Japanese buyers will continue to take the lead in contracting innovation through mixed trading, coal indexation, joint procurement and carbon neutral goods. As several long-term contracts have been declining since the early 1920s and the natural gas and power markets are being liberalized, this will provide more leverage for buyers in future contract discussions. Ensuring supply security through diversified sources of supply will remain a major issue. Japanese buyers are expected to continue to lead the market in purchasing LNG from new supply areas. "The decline in Japan's imports will be driven by competition for coal, nuclear and renewable energy in the power sector and slow macroeconomic growth," said Lucy Cullen, senior analyst. "Although LNG demand is declining, Japan's imports will still exceed 700000 tons / year by most of 2020. At least until 2040, it will still be the second largest LNG consumer in the world, with demand still exceeding 60 MMT. As a result, Japan still provides ample opportunities for LNG sellers, especially when existing contracts expire. Although LNG spot prices continue to fall, Japan's electricity market does not tend to shift from coal to large-scale natural gas conversion.

With increased supply from the United States and Australia, the country continued to have good contracts for LNG until the 1920s. As a result, the average cost of natural gas for Japanese utility companies is still much higher than the spot price, while coal is still the cheapest form of power generation after nuclear and renewable energy based on short-term marginal cost. According to Japan's fifth strategic energy plan (2018), the government aims to reduce the generation of natural gas and coal (by 27% and 26% respectively), and offset the impact of low-carbon nuclear and renewable energy power generation. "With more and more restrictions on financing and coal construction, this trend seems to be changing. As a result, we expect this policy objective and such a strong share of coal in the power generation portfolio to become increasingly difficult to maintain. "This will improve the prospects for LNG," said Cullen. Japan restarted five nuclear power plants in 2018. With the next restart in mid-2020 and 2021, this will put downward pressure on LNG import demand in the early 2020s. Although if anti-terrorism measures are not reached in time, nuclear power failure is still a risk in this period. "We assume that 15 reactors will be back on line by 2030, accounting for 12% of electricity generation, well below the official target of 20-22%. "While nuclear restart usually suppresses the production of natural gas, our lower number of cores means a more optimistic view of LNG demand than the government," said Cullen. In order to achieve a low-carbon future, Japan also uses 22-24% of its 2030 mixture for renewable energy (including hydropower). While wood Mackenzie predicts significant increases in wind and solar capacity, the grid infrastructure needs to be further invested to cope with this level of renewable power generation. "Japan will miss the ambitious 2030 target, with renewable power generation (including hydropower) accounting for more than 20% of 2030 production," Kulun predicted.