Natural Gas and Japanese Energy Market · © 2014 The Japan Gas Association The Japan Gas Association Natural Gas and Japanese Energy Market - opportunities and challenges Hiroshi

© 2014 The Japan Gas Association

The Japan Gas Association

Natural Gas and Japanese Energy Market

- opportunities and challenges

Hiroshi Ozaki

Chairman The Japan Gas Association

GASEX 2014

Hong Kong

November 19, 2014


© 2014 The Japan Gas Association 2

1. Japanese gas industry: an overview

2. Changes in Energy Policy

3. Deregulation of Energy Market

- opportunities

4. Challenges

Contents



1. Japanese gas industry: an overview



Electric

Gas

Primary Energy Supply and LNG Imports

Primary energy supply

Source: Based on Agency for Natural Resources and Energy,

“Energy White Paper 2014”

LNG imports by utilities

Source: Ministry of Finance, “Trade Statistics of Japan”

Surge due to

nuclear shutdown

1. Japanese Gas Industry

Unit: million tons

4

（FY）




Source: Japan Gas Association studies

Trend of Gas Sales

1970 - 2013

5 7

9 12

15

21

25

0

10

20

30

40

1970 1975 1980 1985 1990 1995 2000 2005 2010 2013

Residential Commercial Industrial Other

65% 19%

10%

6%

50%

17%

26%

7%

28%

13% 50%

9%

1970 1990 2010

Unit: billion m3 (41.8605MJ)

35 32

37



New Gas Equipment for Optimum Energy Solutions

Higher comfort and safety in kitchen

Gas space cooling and heating - energy saving, reducing CO2 emissions

Advanced industrial gas applications

Cogeneration and fuel cells - balancing heat and electricity demand




LNG Imports by Gas Utilities

7

Diversifying supply sources

7 countries 18.1 million tons

11 countries 24.3 million tons

Unit: million tons

Indonesia

FY2003

FY2013


Malaysia

Brunei

Australia

Qatar

Oman

USA(Alaska)

Russia (Sakhalin)

Yemen

Algeria

Nigeria

Eq. Guinea






Changes in Energy Policy - before and after Fukushima


Criteria Policy focus

Before Energy security Economic efficiency Environment

Nuclear: 50% Renewables/hydro: 20%

After

Safety

+ Energy security Economic efficiency Environment

Increased use of natural gas +

Distributed generation

Zero-emission power: 70%

Diversifying power supply

Revitalizing economy Overcoming energy

constraints

9




- opportunities



Development of Energy Market Deregulation

11

Source: Agency for Natural Resources and Energy

Growth in new market participants with full liberalization

Electricity

■ Breakdown of new entrants by type of business (As of April 1, 2014 n=292 cases)

Gas

New entrants’ market share (sales volume)

(FY)

(%)

2 million m3 - 1 million m3 - 0.5 million m3 - 0.1 million m3 -

2,000kW - 500kW - 50kW -

Threshold:

Gas

Threshold:

Electricity

Electricity38%

Petroleum& LPG12%

Domesttic natural gas

８%

Trading

companies

5%

Others37%

3. Deregulation of energy market



Gas Business in Liberalized Energy Market

Expanding gas market Growth in electricity market

Gas supply Gas supply to power plants

Power supply

Excess power

Community-wide power interchange

Onsite use

Power supply from distributed

energy systems through grid

Fuel cells


Cogeneration



Smart City Project: advanced use of cogeneration

13

Nihonbashi Smart City in Tokyo

30% reduction in energy use and CO2 emissions

Improved resilience against natural disasters

Essential electricity supply for business continuity program (BCP) at blackout

Source: Mitsui Fudosan Co., Ltd. website

Enhanced urban disaster resilience

Electricity from grid

CogenerationAbsorption water

chiller-heater

Electricity demand

Cooling demand Heating demand

Ge

ne

rate

d e

lectr

icity

Ho

t wa

ter

Co

ld w

ate

r

City gas




Alternative energies (where applicable)

14

Ele

ctr

ic g

enera

tio

n c

ost

Electric power output (Operating rate in response to volume of electricity demand)

Nuclear hydro

Coal LNG combined (high efficiency)

Petroleum, pumped storage hydro, etc. Average unit generation cost

For all electricity generation

Cogeneration

Fuel cell

Middle & peak power supply Base power supply

Use of low cost power sources to control generation costs

Potential district sharing and electricity sales

9.1 GW (By year 2030)

Using the Electric Power Supply Capacity of Distributed Energy Systems

Reducing total electric power generation cost and electricity bill

LNG/BTG

(conventional)




Gas Vision 2030: expanded use of natural gas 1

【Electric power supply stability】

15% of annual electricity demand

【Energy reduction effects 】

Energy conservation: 8.26 million

kloe/year

【CO2 reduction】

62 million tons-CO2/year

Expected benefits

Source: Japan Gas Association, “Expand Natural Gas Use to 2030.” Revised since October 27, 2011 release

1. Cogeneration

4.82 GW 6x 30 GW

2. Gas airconditioning

13 million RT 26 million RT

3. Industrial heat demand

11.5 % 25.0 %

4. Residential fuel cell

40,000 units 5.3 million units

*Including LPG

5. Natural gas vehicle (NGV)

40,000 units 0.5 million units

Steps to be taken by 2030

2x

2x

125x

12x

2012 2030




Disseminating Fuel Cells for the Home

More compact

Higher generating

efficiency

Lower cost

2009 2010 2011 2012 2013 2014 2030

Residential fuel cell system sales

16

Today




Cogeneration

(entering the grid)

17

All other energy sources

City gas demand expands to 15%

33.8 billion m3

2009 2030

＋30 billion m3

City gas

sales volume

On-grid

Power supply

Off-grid

Power supply

85%

15%

Renewable

energies

Nuclear

power

Coal

LNG

Petroleum

Cogeneration

(on-site consumption)

To

tal

po

wer

dem

an

d

Natural gas (for thermal

power plants)

City gas

７％

Current primary energy shares

(2009, prior to 2011 earthquake)

Gas Vision 2030: Expanded Use of Natural Gas 2

Source: Adapted from Ministry of Economy, Trade and Industry,

“Comprehensive Energy Statics”


Gas in primary energy supply in 2030 Fuel sources for power in 2030



4. Challenges



4. Challenges and Opportunities

Soaring “Asian Premium”

LNG price on

arrival in Japan Russian gas

@ Germany

U.S. Henry Hub

spot price

Average Japan

crude oil import

price (right axis)

(Do

lla

rs/B

arr

els

)

(Dolla

rs/M

MB

TU

)



Securing Economical and Stable LNG Supply

Import of US LNG

(Contract volume of gas utilities)

Freeport (2018-)

Osaka Gas: 2.2 mtpa

Cove Point (2017-)

Tokyo Gas: 1.4 mtpa

Cameron (2018-)

Tokyo Gas: 0.52 mtpa

Toho Gas: 0.3 mtpa

Supplies • USA, Canada, Mozambique, etc.

Pricing

• Introducing US and European pricing

• Formation of futures market and Asia

market

Delivery systems

• International pipeline: Russia to Japan,

Russia via China and South Korea

Resources

• Developing methane hydrate

Diversification

20




Towards Commercialization of Methane Hydrate

Japan’s methane hydrate development program

Phase 1 2001-08

Phase 2 2009-15

Phase 3 2016-18

• Basic research

• Resource survey in Japan’s EEZ

• On-shore production tests in Canada

• Offshore production tests in Japan’s EEZ

• Long-term on-shore production tests in

Alaska

• Preparations for commercial extraction

• Comprehensive evaluation

(e.g. economic viability, environmental impact)

Source: Japan Oil, Gas and Metals National Corporation (JOGMEC) and Research Consortium for Methane Hydrate Resources in Japan (MH21) homepages


World first gas extraction from ocean floor methane hydrate (March 2013)



Thank you.

Documents

Natural Gas and Japanese Energy Market · © 2014 The Japan Gas Association The Japan Gas Association Natural Gas and Japanese Energy Market - opportunities and challenges Hiroshi