Photographer: Tomohiro Ohsumi/Bloomberg

The Biggest LNG Buyer Is Set to Get More Supplies Than It Needs

  • Japan's demand seen dropping as idled atomic reactors resume
  • Surplus purchases may force reselling of cargo, add to glut

Japan is probably set to receive more LNG than it needs, potentially forcing some purchasers in the world’s biggest user of the fuel to resell cargoes and add to a glut.

Liquefied natural gas volumes contracted by Japanese buyers may exceed their combined demand from 2017 to 2021, according to a report compiled by the Ministry of Economy, Trade and Industry. The report, obtained by Bloomberg News, was distributed at a closed meeting attended by officials of the government and 14 companies including Royal Dutch Shell Plc, Jera Co. and Tokyo Gas Co.

Japan in August restarted the first of reactors idled for safety checks in the wake of the 2011 Fukushima disaster and a second in October, helping the nation reduce consumption of LNG for power generation. With more reactors expected to be back online in the coming years, the Japanese government estimates LNG demand will fall about 30 percent to 62 million metric tons by 2030, the METI report shows.

“Given some of the contracts don’t have so-called destination clauses, it should be noted not all of the contracted volume would be necessarily supplied to Japan and Asia,” Junzo Tamamizu, the managing partner of Clavis Energy Partners LLC, a Tokyo-based consulting and advisory firm, wrote in an e-mailed reply to Bloomberg News questions. 

As LNG buyers are aware of a potential decline in future LNG demand, they will seek to secure more efficient and flexible contracts and work on developing an LNG trading business, Tamamizu wrote.

Annual long-term LNG contracted volumes will probably peak at about 95 million tons in 2017, according to data in the METI report, which cited sources, including the International Group of Liquefied Natural Gas Importers, and press releases. The volumes are expected to fall to about 90 million tons in 2018 and about 80 million tons in 2019 and 2020, according to the report.

The International Energy Agency estimates Japan’s LNG demand will decline to 72 million tons by 2020, according to the report. Of less than 90 million tons procured by Japan in 2014, spot and short-term deals accounted for about 30 percent, according to the report.

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