Natural Gas and Japanese Energy Market - opportunities and challenges Hiroshi Ozaki Chairman GASEX 2014 Hong Kong November 19, 2014
Contents 1. Japanese gas industry: an overview 2. Changes in Energy Policy 3. Deregulation of Energy Market - opportunities 4. Challenges 2
1. Japanese gas industry: an overview 3
1. Japanese Gas Industry Primary Energy Supply and LNG Imports Primary energy supply LNG imports by utilities Unit: million tons Surge due to nuclear shutdown Electric Gas Source: Based on Agency for Natural Resources and Energy, Energy White Paper 2014 Source: Ministry of Finance, Trade Statistics of Japan (FY) 4
1. Japanese Gas Industry Unit: billion m 3 (41.8605MJ) 40 30 20 10 6% 10% 19% 65% Trend of Gas Sales 1970-2013 Residential Commercial Industrial Other 1970 1990 2010 7% 28% 26% 50% 50% 13% 17% 21 15 12 9 7 5 9% 37 35 32 25 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2013 Source: Japan Gas Association studies 5
1. Japanese Gas Industry New Gas Equipment for Optimum Energy Solutions Cogeneration and fuel cells - balancing heat and electricity demand Gas space cooling and heating - energy saving, reducing CO 2 emissions Advanced industrial gas applications Higher comfort and safety in kitchen 6
1. Japanese Gas Industry LNG Imports by Gas Utilities Diversifying supply sources FY2003 FY2013 7 countries 18.1 million tons 11 countries 24.3 million tons Unit: million tons Indonesia Malaysia Brunei Australia Qatar Oman USA(Alaska) Russia (Sakhalin) Yemen Nigeria Eq. Guinea Algeria 7
2. Changes in Energy Policy 8
2. Changes in Energy Policy Changes in Energy Policy - before and after Fukushima Criteria Policy focus Before Energy security Economic efficiency Environment Overcoming energy constraints Zero-emission power: 70% Nuclear: 50% Renewables/hydro: 20% Revitalizing economy After Safety + Energy security Economic efficiency Environment Diversifying power supply Increased use of natural gas + Distributed generation 9
3. Deregulation of Energy Market - opportunities 10
3. Deregulation of energy market (%) Development of Energy Market Deregulation New entrants market share (sales volume) Breakdown of new entrants by type of business (As of April 1, 2014 n=292 cases) Others 37% Electricity 38% Gas Trading companies 5% Domesttic natural gas 8% Petroleum& LPG 12% Electricity Threshold: Gas Threshold: Electricity (FY) 2 million m 3-1 million m 3-0.5 million m 3-0.1 million m 3-2,000kW - 500kW - 50kW - Source: Agency for Natural Resources and Energy Growth in new market participants with full liberalization 11
3. Deregulation of energy market Gas Business in Liberalized Energy Market Expanding gas market Growth in electricity market Onsite use Power supply from distributed energy systems through grid Excess power Fuel cells Power supply Cogeneration Community-wide power interchange Gas supply Gas supply to power plants 12
Cold water Hot water Generated electricity 3. Deregulation of energy market Smart City Project: advanced use of cogeneration Nihonbashi Smart City in Tokyo 30% reduction in energy use and CO 2 emissions Improved resilience against natural disasters Essential electricity supply for business continuity program (BCP) at blackout Enhanced urban disaster resilience Electricity from grid Electricity demand Cooling demand Heating demand Absorption water chiller-heater Cogeneration City gas Source: Mitsui Fudosan Co., Ltd. website 13
3. Deregulation of energy market Electric generation cost Using the Electric Power Supply Capacity of Distributed Energy Systems Reducing total electric power generation cost and electricity bill Use of low cost power sources to control generation costs Alternative energies (where applicable) Potential district sharing and electricity sales 9.1 GW (By year 2030) Average unit generation cost For all electricity generation Petroleum, pumped storage hydro, etc. Nuclear hydro Coal LNG combined (high efficiency) Cogeneration Fuel cell LNG/BTG (conventional) Electric power output (Operating rate in response to volume of electricity demand) Base power supply Middle & peak power supply 14
3. Deregulation of energy market Gas Vision 2030: expanded use of natural gas 1 Steps to be taken by 2030 2012 2030 1. Cogeneration 4.82 GW 6x 30 GW 2. Gas airconditioning 13 million RT 2x 26 million RT 3. Industrial heat demand 11.5 % 2x 25.0 % 4. Residential fuel cell 40,000 units 125x 5.3 million units *Including LPG 5. Natural gas vehicle (NGV) 40,000 units 12x 0.5 million units Expected benefits Electric power supply stability 15% of annual electricity demand Energy reduction effects Energy conservation: 8.26 million kloe/year CO 2 reduction 62 million tons-co 2 /year Source: Japan Gas Association, Expand Natural Gas Use to 2030. Revised since October 27, 2011 release 15
3. Deregulation of energy market Disseminating Fuel Cells for the Home Residential fuel cell system sales Today More compact Higher generating efficiency Lower cost 2009 2010 2011 2012 2013 2014 2030 16
Total power demand 3. Deregulation of Energy Market Gas Vision 2030: Expanded Use of Natural Gas 2 Gas in primary energy supply in 2030 Fuel sources for power in 2030 City gas sales volume 33.8 billion m 3 +30 billion m 3 Renewable energies Natural gas (for thermal power plants) 2009 2030 City gas 7% On-grid Power supply Nuclear power Coal LNG Petroleum 85% Current primary energy shares (2009, prior to 2011 earthquake) All other energy sources City gas demand expands to 15% Off-grid Power supply Cogeneration (entering the grid) Cogeneration (on-site consumption) 15% Source: Adapted from Ministry of Economy, Trade and Industry, Comprehensive Energy Statics 17
4. Challenges 18
4. Challenges and Opportunities (Dollars/MMBTU) (Dollars/Barrels) Soaring Asian Premium LNG price on arrival in Japan U.S. Henry Hub spot price Russian gas @ Germany Average Japan crude oil import price (right axis) 19
4. Challenges and Opportunities Securing Economical and Stable LNG Supply Diversification 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 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 20
4. Challenges and Opportunities Towards Commercialization of Methane Hydrate Japan s methane hydrate development program Phase 1 2001-08 Basic research Resource survey in Japan s EEZ On-shore production tests in Canada Phase 2 2009-15 Phase 3 2016-18 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) World first gas extraction from ocean floor methane hydrate (March 2013) Source: Japan Oil, Gas and Metals National Corporation (JOGMEC) and Research Consortium for Methane Hydrate Resources in Japan (MH21) homepages 21
Thank you. 22