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Outlook for the Natural Gas Market in Japan
Satoru YASUOKA Tokyo Gas Co., Ltd.
27 October, 2009
Northeast Asia Petroleum Forum 2009 (Keidanren-Kaikan, Tokyo)
Session-5 Trends and Prospects of Natural Gas in Northeast AsiaNortheast Asia Petroleum Forum 2009
IEEJ: November 2009
Slide2
Role of LNG in Northeast Asia
・Poor indigenous resources and limited energy options
・Politically stable island and peninsula nations
・Traditionally, industry and logistics by marine transportation
・Seasonal climate, combined with economic trends and unpredictable weather (heavy winter)
・As an alternative to coal and petroleum, LNG in Japan has 40-years history since Alaska
・Joint efforts by electric and gas utilities (2:1)
0
200
400
600
800
1,000
1,200
1,400
1,600
4 5 6 7 8 9 10 11 12 1 2 3
month
Gas
sal
es v
olum
e(m
illio
n m
3, 4
5MJ/
m3)
Seasonal fluctuations(FY2007, Tokyo Gas)
Residential (24%)
Business (21%)
Industrial (40%)
Wholesale (15%)
Source: Tokyo Gas
北東アジアのLNG
IEEJ: November 2009
Slide3
Need for Greater Flexibility• LNG is much more than simple buffer/complement for nuclear power,
renewable energies and pipeline natural gas (PNG) as claimed by some Western Countries
• LNG in Asia is a major player = base load energy and traded mostly under long-term base load contracts
• Contract terms by themselves cannot become the fundamental solutions in maintaining necessary flexibility
Break down of global natural gas/LNG trade (2008)
PNG 72%
Source: BP Statistical Review of World Energy June 2009
Asia (Traditional) 21%
Europe 24%
America 7%
Asia (Emerging) 7%
Europe 48%
North America 16%South America 2%
Middle East 3%
Asia 2%
LNG 28%
Japan 41%
68Mton
Africa 1%
Total 437Mton Total 170Mton
69% (1988)
柔軟性を求める
IEEJ: November 2009
Slide4
3 Solutions for Flexibility (Hardware)
• Buyers, within their countries, need to make short- and long-term preparation and maximum effort:
(1) Emergency adjustments: self-controlled LNG tankers (19 LNG tankers in Japan) and floating
(2) Regular adjustments: reserves in storage tanks (27 LNG terminals, 14.6 million kL in Japan), underground storage, and pipeline connections between LNG terminals
(3) Demand adjustments: multi-fuel facilities and LNG-fired power plants
⇒Multi-fuel Facilities such as blast furnace⇒Adjustment of operation hours of LNG-fired power plants
including (PPS) utilizing the power market (holiday/night)
量的柔軟性創出へのハード面の3つの工夫
IEEJ: November 2009
Slide5
Buyers’
Portfolio (Software)
Currently popular “portfolio” is not only for the sellers
Minimizing elements such as geopolitical risks, buyers diversify sources and utilize “ spot ” (substitutive LNG)
⇒ (country, direction, distance, climate, operator, liquefaction performance, origin of source and qualities)
As a consequence: diversification to Southeast Asia, Oceania, the Middle East and Russia
Cooperation among buyers for offsetting seasonal fluctuations (different demand patterns, such as between electric power and gas or between countries)
Respecting the philosophy of long-term relationship and project start-up
Country breakdown of exportsto Northeast Asia
(2009, quantities based on long-term contracts)
Brunei6%
AbuDhabi
4%
Yemen2%
Qatar19%
Oman6% Australia
15%
Indonesia
23%
Malaysia19%
Mid
dle
East
Oceania
SE Asia
Russia６％
買主ポートフォリオ(ソフト面の工夫)
IEEJ: November 2009
Slide6
Tripolarizing LNG Markets
Asia-Pacific, North American and Europe were the world's 3 major LNG markets
But now actually there are 4 major regions, because the BRICs countries are rising
In Atlantic LNG market, we should focus on the South in the day ahead
Asia-Pacific Atlantic
Traditional(Japan, Korea, Taiwan)
Emerging economies(China, India)
North America Europe
MTA (%)(2008)
105.6 (62%) 11.4 (7%) 11.4 (7%) 41.5 (24%)
LNG growth (short-term)
Option Little domestic gas Large domestic gas fields
Unconventional gas PNG
Diversification of sources PNG Nuclear power
Price index JLC and others JLC Henry Hub Petroleum product/NBP
4 LNG regionsExcess LNG tanker
capacity & price difference
Increasing complexity of global financial and economic crisis (How deep? How long?)
?
三極化しつつあるLNGマーケット
IEEJ: November 2009
Slide7
Comparison of Trends in Tripolarizing Gas Markets
• The differences come from the availability of substitutes• Are price differences unreasonable, or acceptable commonsense in the
world of business?• If the gap continues, gas in Asia will face be compared against and
balanced with other sources of energy
02468
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Nat
ural
Gas
Pric
e ($
/mm
btu)
0
20
40
60
80
100
120
140
Cru
de O
il P
rice
($/b
bl)
HHNBPJLCWTI
81.19
5.70
4.95
Figures in square brackets are market prices as of October 23
8.31
Source: Trade statistics of Japan, NYMEX, etc.
ガス市場三極化の流れを見る
IEEJ: November 2009
Slide8
Relaxation of Market Strain• Local production/local consumption is normally efficient for
energy and manufactured goods, however, centralized production by proficient producer can also be rational
• For normal products, generally price gap other than the difference in cost of transportation dissolve with time
• Actions for relaxing market strain:⇒
Increase of spot vessels; self-controlled
LNG tankers for FOB, faster, larger and more efficient
⇒
The world is round (export terminals
along the Pacific coast of North and South America, expansion of the Panama Canal, shipment across the Arctic Ocean. Protection from pirates)
⇒
New blood of entrants into the
upstream, who can revolutionize distribution, are awaited
Source: Poten & Partners
0
100
200
300
400
500
2004
2005
2006
2007
2008
2009
2010
2011
2012
Completion Year
Num
ber
of
LN
G v
essel
100 ,000
110,000
120,000
130,000
140,000
150,000
Avera
ge C
apacit
y (
m3)
Dedicated Undedicated Average Capacity
LNGマーケットのひずみを緩和する
IEEJ: November 2009
Slide9
Index Prices Linkage with Oil Unnecessary?
JCC
JCC WTIBrent
Dubai
WTI
BrentDubai• We had enough of local index “WTI”, also
anxious about GASPEC• Index is useful if neither complacent nor
permit speculation• Should sellers and buyers insist on linkage
with oil prices?⇒
Buyers in Asia think of LNG as an oil- alternative (The share of natural gas in the total primary energy demand: 7% in Northeast Asia, while 25% in OECD)
⇒
Developing gas market in NE Asia vs.
matured gas market in western countries that has lost substitutability
⇒
At the consumer end, LNG competes with
hydro , nuclear and renewable energies (fixed-cost based energy), and coal and petroleum (variable-cost based energy)
⇒
Sellers wish to recover the cost of
investment in expensive projects• The Asian LNG market still requires “some”
linkage with oil prices with S-curveSource:BP Statistical Review of World Energy, June 2009
Primary Energy Consumption - World Comparison (2008)
7%17%
25% 26%35%
27%
44%
40% 40%32%
57%
25% 21% 19% 18%
4% 11% 9%7% 9%
5% 3% 5% 9% 6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
NE.Asi
a
Japa
n
OEC
D
Amer
ica
Euro
pe
Natural Gas Oil Coal Nuclear Hydro
Japan
価格指標、石油リンクは無用か
IEEJ: November 2009
Slide10
Global Warming - Strong Paradigm Shift
• There is a strong headwind against fossil fuels• Nuclear power and renewable energies (photovoltaic,
solar, wind, wave, hydro and biomass) are more CO2 - friendly at LCA base
• Even though we support greater use of such energies, each alternative requires a long time for implementation (the time factor)
⇒
Renewable energies vs. nature (density, lack of stability,
suitability, transmission distance and cost-effectiveness)⇒
Large scale facilities can cause further damage to the
environment, biomass is a trade off to food production⇒
Nuclear power: siting problem, decommissioning, and
uncertainties about final disposal• Is the next role of natural gas, after serving as an
alternative to oil, a bridge until the era of renewable energies? What is the true role of natural gas?
地球温暖化…猛烈なパラダイムシフト
IEEJ: November 2009
Slide11
Multi-Variable Equation on CO2 Based on the Emission Factor
• Energy saving first and to improve the quality of life in emerging countries without lowering that in advanced countries
• Decreasing the primary energy consumption (conserving energy resources) or reducing CO2 emissions (mitigating global warming) ?
• 1.00×C+0.76×O+0.56×G+0.01×H+0.07×
R+0.03×N = CO2• Infinite combination of solutions in case of a
25% reduction of CO2⇒However, if we set a deadline,
H, R, N<α, C, O>β
is undeniable
• There are so few real solutions, G=?
Conceptual illustration
GG
O
O
C
C
H
H
R
R
N
N
Consumption CO2
排出係数で作るCO2の多元方程式
IEEJ: November 2009
Slide12
Realistic Solution on the Supply Side
• Since efforts to expand the use of renewable energies and nuclear power take much time, fossil fuels cannot be abandoned
⇒ Coal is abundant at low prices, will draw more attention with the realization of CCS
⇒ Petroleum will decline, but will remain having the transport sector as its core. With the domestic reserve storage capacity (6 months), the quick availability and the substitutability, petroleum still useful for utility business
⇒
With relative cleanliness, transportability and quick response, natural gas is important for supporting the networks of distributed power generators and compensating for unstable outputs from renewable energies
• How should we best manage presently-available resources?• Natural gas holds “casting vote” because it has the smallest
CO2 emission factor among fossil fuel options
サプライサイドでのリアリティのある解決
IEEJ: November 2009
Slide13Energy-saving Potential on the Demand Side = A New Resource
• Large energy consuming countries have the hidden treasure
• Buyers should actively encourage efficient and advanced use of energy at the consumer end
• Success depends greatly on how well Japan's advanced energy-saving technologies spread worldwide Blue line: Primary energy consumption per GDP
Green column: Primary energy consumption
Energy Efficiency in Asian-Pacific Countries
Source: IEA Key World Energy Statistics, 2008
0
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500
600
Chin
a
Indonesia
India
Thailand
Mala
ysia
Kore
a
Chin
ese T
aip
ei
Austr
alia
Sin
gapore
Japan
0
100
200
300
400
500
600
700
800
900
1000
Mtoe Toe/mil US$@20001,879
デマンドサイドでの省エネ、もうひとつの資源
IEEJ: November 2009
Slide14
Real Potential of Energy Conservation
• Promote the use of energy-efficient appliances and spreading of distributed generator networks with renewable energies
• Examples of remarkable progress: fuel efficiency of automobiles, power generation efficiencies, COP (coefficient of performance) of appliances, innovation of fuel cell
• Calorific value adjustment in city gas improves quality and energy conservation in Japan
• The CO2 emission factor of natural gas is usually reported as 0.56. However, considering that switching to natural gas results in an energy conservation of at least 10% (both for power generation and for direct combustion), the real CO2 emission factor is 0.5 or less.
省エネの底力
IEEJ: November 2009
Slide15
Immediate Effect of Shifting to Natural Gas
• Cumulating CO2 emission is an urgent issue for the global warming
• Natural gas, together with nuclear power, presently plays a key role in energy
• With its excellent compatibility with renewable energies, natural gas will remain an invaluable partner
• Natural gas is not just a bridge to renewable energies, but a continuous road and will not disappear after 50 years.
CO2 Reduction
Time
CO2 reduction effects of widespread use of natural gas
CO2 reduction effects of renewable and nuclear power plants
10year 20year
天然ガスシフトの即効性
IEEJ: November 2009
Slide16
Achieving Healthy LNG Supply-Demand Balance
• Anxieties about supply-demand and the turbulence in prices will cool down consumers’ appetite and drive them to alternative options (not necessary bad)
• Technological progress is creating an expectation for a breakthrough in the expanded use of renewable energies
• The economic crisis, caused by energy and financial sectors, seems to have normalized the supply-demand balance for the moment
• Globalization of distribution and finance tends to lead to simultaneous economical growth or recession, which are difficult to manage
• Unless action is taken, a crisis in LNG prices will easily happen again
0
50
100
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300
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Source: IEEJ, Tokyo Gas
Uni
t: m
illion
ton
(LN
G)
LNG Demand Outlook(2008/3)
LNG Demand Outlook (2009/3)
Existing
Under Construction
Planning
Outlook for LNG supply in Asia-Pacific Region
LNG需給バランス健全化に向けて
IEEJ: November 2009
Slide17
Encouragement of Upstream Development
• Easy gas is disappearing and upstream development will be characterized by higher costs and greater difficulties
• Existing reserves are decreasing while the need for domestic gas is increasing
• Buyers will encouraged development of small-scale, deep-sea and remote offshore projects and consequently extend the R/P years
• Expectation for LNG-FPSO and small-scale liquefaction
• Expectation for new sources and unconventionals⇒
The US may quickly meet 50% of the demand with tight-sand, shale and CBM
⇒
Unconventional resources exist in various countries, the development of which will soon offer 200 R/P years, and LNG from unconventionals are also under review
⇒
Japan has high expectations for indigenous methane hydrate
Non-conventional projects(tight-sand, shale, CBM and MH)
200 years
Large-scale conventional type
projects
More difficult projects with conventional engineering(deep-sea, smaller-scale, and remote projects)
上流開発をエンカレッジする
IEEJ: November 2009
Slide18
Involvement in the Value Chain• Sellers and buyers must come to mutual agreements that are
justifiable and clearly understood by both parties⇒
Development of projects cannot be actualized if buyers simply
demand lower prices without taking risk⇒
Additional demand will not be cultivated if the sellers expect
exceptionally high profits• Increase buyers’ advancement into the value chain
(transportation, upstream) to take on a appropriate share of risk and increasing flexibility
• Buyers must always remember the need for demand-side management.
Regas Terminals Pipelines CustomersShippingE&P, Liquefaction
バリューチェーンへの進出
IEEJ: November 2009
Slide19
Impartial Outlook on the Trend for Japan's LNG Trade
0
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100
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
FY
LN
G D
em
and (
Mto
n)
①
②
③
Power Generation
Power Generation
City gasCity gas
Source: Our estimation based on the Trade statistics of Japan, etc.
• Predictions during bubble (①) and after recession (③)are often strongly psychologically biased (Where is the reasonable middle?)
• We should not be misguided by uninformed interpretation of statistics
⇒ The 20% drop in demand from the previous year reported for the first half of FY2009 is largely because of a comparison against the bubble period in the first half of FY2008
⇒ A similar comparison between the second halves of these fiscal years will give a very different impression
• Maximum share of spot will be 10% or lower• What is the most impartial prediction? We
shall carefully examine how past trends can be extrapolated into the long-term future (②)
64Mton(forecast)
日本LNGトレンドの正しい見方
IEEJ: November 2009
Slide20
0
20
40
60
80
100
120
2005 2007 2020 2030
Japan's Strategy for Growth• The trend in China, as a leader in industrial
growth, and in USA, as the major. Both are indispensable for the growth of Far East (especially, Japan).GDPJapan ∝ GDPChina + UMCSI* ⇒
gradual recovery of the Japanese economy.
• Domestic demand, which is one of the two pillars of the economy in Japan, is not expected to grow much
• However, Japan still has high potential need for natural gas as an alternative to other fuels.
• For the maximum deployment case of nuclear power plants, the government's energy supply-demand outlook predicts a drastic decline in the demand for natural gas.
0100200300400500600700
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Real GDP(Japan)(FY1990:100)Real GDP(China)(FY1990:100)UMCSI
Unit: million oil- equivalent KL
Actual Maximum deployment case
Business-as-usual case
Evolution of substantial GDP in Japan and China, and the index of buying interest of U.S. consumers
Outlook for LNG Demand in Japan
Source: Our estimation based on the proposed revision to the Long-Term Energy Supply and Demand Outlook, August 2009
Power Generation
Power Generation
City gasCity gas
*: University of Michigan Consumer Sentiment Index
Effect of getting up
?
日本の成長戦略
IEEJ: November 2009
Slide21
Japan's Near-term Recovery• A surprising V-shaped recovery
is unlikely and the actual pattern of recovery is expected to be almost L-shaped
• Even if gas demand grow by an average of 4.4% annually from FY 2009, recovery to the peak demand (observed in the second half of FY2007 and the first half of FY2008) is expected to take at least 4 years
• The tightening of environmental regulations in Japan and other advanced countries may become meaningless if it causes industries to migrate to other countries
20,000
25,000
30,000
35,000
40,000
2007
2008
2009
2010
2011
2012
2013
FY
Gas D
em
and i
n J
apan
(million m
3,
46M
J/m
3)
Gas supply plan in Japan (City gas business)
②
CAGR: 4.4%
近未来日本の回復
IEEJ: November 2009
Slide22
: Operating (27): Planned (8): Tokyo Gas
Preparing for Recovery• The mountainous topography of Japan makes
transportation between cities difficult. For bulk transportation, marine transportation has historically enjoyed dominance.
• While the demand for natural gas is expected to grow, we face many challenges, not only with securing supply sources but also constructing pipelines in Japan
• As a quick measure, we are expanding the use of transportation by trucks and coastal vessels
• As a result, Japan has as many as 27 LNG terminals in its relatively small territory, and there are still many plans to construct additional LNG terminals (mostly small- to medium-scale)
回復への準備
IEEJ: November 2009
Slide23
We are all in “the same boat”
• Considering the whole situation, sellers and buyers should cooperate to establish stable supplies and surely increase the value of natural gas
• Players in energy markets should understand the urgency of conserving resources and taking environmental actions, and should intelligently manage available resources
• Buyers in the Asian market, traditionally seen as less vocal, should show greater presence and begin to speak out more on behalf of their customers.
⇒ Countries with a long history of LNG trading should assert themselves based on their proven achievements and creditworthiness
⇒
Emerging countries should assert themselves based on their purchasing power and growth potential
• Sellers should make proposals that capture the needs of buyers• A business axiom in Japan is that we must ensure “benefits to three”「三方
良」, that is, benefits to society, benefits to the business partner, and benefits to oneself in this order. Sun Tzu in China once said that even bitter enemies sometimes find themselves in the same boat (forgetting the conflicts and together tackle the crises at hand) 「呉越同舟」
正しいメッセージ：皆同じ船に乗っている
IEEJ: November 2009Contact : [email protected]
