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Japan’s new energy policy

Oilfield Technology,

Cedigaz has said, in a new report that Japan’s energy policy is undergoing fundamental changes. The accident at the Fukushima nuclear power plant has created questions surrounding the future contribution of nuclear power to the country’s energy mix. Growing imports of fossil fuels to replace the lost nuclear capacity inflated energy prices in the country and has raised economic and energy security challenges. At the same time, the US shale revolution has reshaped the global energy scene and Japan is looking to take advantage of the trend to eliminate the ‘Asian premium’ on natural gas prices and expand cheaper natural gas consumption. These developments have driven the Japanese government to review its energy policy from scratch and adopt a new Strategic Energy Plan. The new policy is reportedly has far reaching implications for gas and coal development in Japan, as well as for international markets as Japan is the world’s largest LNG importer and the second largest coal importer.

In the new report, ‘Japan’s new energy policy: In search for stable and competitive energy supply’, Cedigaz analyses the current changes taking place on the gas and coal markets in Japan, in light of the new energy policy adopted in April this year, and in particular the decision to restart safe nuclear power plants and push forward electricity market reforms.

Systematic energy policy

Cedigaz has said that the new energy policy is systematic and is working in alignment with other policy strands and is supporting industrial, economic and environmental goals of Abenomics. The new policy affects the structure of the economy as a whole, not only the energy sector and despite the confirmation of nuclear power as an important base load power source, on the major premise of ensuring its safety, the pace and scale of nuclear reactors restart is still uncertain in the country. The report has also found that while utilities have applied to restart 20 nuclear reactors, only two have cleared the approval process back in September this year. However, they still have to get local approval and clear other safety tests before restarting. The energy situation in Japan and Asia has pushed the government to reevaluate the role of coal in the power mix. The government now promotes the building of advanced coal power plants in Japan, and abroad, as a pillar of its export industry.

LNG and oil indexation

Since Fukushima, the increasing price of LNG has significantly inflated procurements costs and these rose again substantially in 2013 with the devaluation of the yen. Due to the heavy burden for Japan’s economy, citizens and businesses, the government has developed a wide strategy to reduce its LNG procurement costs, which encompasses the full LNG value chain. Key steps in this direction were taken recently, such as the US$ 10 billion loan to finance the US Cameron LNG project, the alliance between TEPCO and Chubu Electric or between Tokyo Gas and South Korea’s Kogas and the launch of the first trading platform for LNG derivatives.


The prolonged shutdown of nuclear power plants in Japan as well as a rising prospect that several units may not come back online have prompted utilities to invest in new thermal capacities. This trend has been reinforced by the need to replace aging fleets. Electricity market reforms are also a strong incentive to expand capacity. Several power plants are built by companies looking to enter market competition, mostly around the highly coveted Great Tokyo metropolitan area. The Cedigaz report says that more than 40 GW of new gas and coal power capacity is at various stages of development. Most of the thermal plants being built before 2019 are gas fired, however, as the country tries to reduce its energy bill, coal has become a new competitor for gas in the power sector as its import price is five times less than LNG on a Btu basis. Efforts to reduce LNG supply costs will be a key determining factor in this new competition. The success of renewable feed in tariffs and the outcome of the climate discussions next year in Paris will also play a key decisive role.

Edited from press release by Claira Lloyd

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