A plan by Japan, the world’s largest LNG market, to close old and inefficient coalfired
power plants by 2030 could lead to an increase in the country’s LNG demand, said a senior official with the Ministry of Economy, Trade and Industry (Meti).
Last week, Japan’s Meti announced that it will introduce measures to accelerate closures of old coalfired plants to achieve an earlier set goal of reducing the share of coal in the power mix from the current 32%, down to 26%. The government plans to consider new rules, tax incentives and hold discussions with the industry and experts. Although it was not revealed how many plants will be affected, Japanese media reported that 100 plants out of the existing 140 plants, which emit a large amount of CO2, will be targeted.
“Meti’s decision will certainly have an impact on Japan’s future power plants. We have to secure more LNGfired power plants,” Takeshi Soda, Meti’s director for oil and gas, told the Japan LNG & Gas Virtual Summit organized by DMG Events on Wednesday. There is a strong need for a “more flexible and stable LNG price,” Soda said, pointing to the importance of LNG amid a global trend toward decarbonization.
“LNG is still important not only for developed countries, but also developing economies, which need supply of electricity.” Soda reaffirmed Meti’s support for Japanese firms to build LNG plants and regasification infrastructure outside of
Japan under a $10 billion publicprivate initiative, which was announced last year (LNGI Sep.27'19). Such financial support will encourage the expansion of the global LNG trade, enhance supply security for Japan and create business opportunities for Japanese firms, he said.
News of the coal closures has come at a time when Japan is expected to conduct a review of its basic energy policy, which is revised every three years. “A review of the energy policy is due by end 2020 or early 2021,” according to Soda, who declined to be drawn on what would be the direction of the revised policy.
Increasing environmental pressures on coal have already pushed some utilities to switch from using coal as a fuel to LNG for new power plants (LNGI Sep.5'19). Under the 2015 Paris agreement, Japan pledged to cut its emissions by 26% by 2030 compared with 2013 levels, which cannot be achieved if it continues to build new coalfired plants.
Japan remains keen to restart its nuclear power units which suspended operations following the 2011 Fukushima disaster. “Meti is still struggling to restart nuclear, which is the most stable fuel,” Soda said.
Until now, only nine units out of 34 operable reactors in Japan have restarted (LNGI May11'20). In 2018, the Japanese government maintained its fuel targets from the last update in 2015 (LNGI May17'18).
Nuclear is expected to account for 20%22% of Japan's power supply in 2030, with renewables on 22%24% and fossil fuels making up the remainder (LNGI Apr.5'18). Gas is expected to make up the highest share of the fossil fuel mix at 27%, followed by coal (26%) and oil (3%).
Meti previously forecast that Japan’s LNG demand would decline over the long term due to an aging population, increasing share of renewables and restarts of more nuclear units. Japan’s LNG imports have fallen steadily from 87.3 million tons in 2012, which saw strong growth following Fukushima, to 77.3 million tons in 2019.
Wood Mackenzie said Japan’s policy shift could create significant upside for LNG demand but it remains to be seen if the closures are achievable and whether it would really represent a Uturn on coal. The consultancy said around 24 GW of currently operational coalfired plants are considered low efficiency defined as requiring more than 8,600 btu per kWh of output which represents about 51% of Japan’s operational coalfired units. If a gradual phase out takes place over the next decade, Japan’s power mix has little option but to rely on nuclear and imported LNG, it said.
“’Lost’ coal generation could reach around 160 TWh by 2030. Nuclear would have to be increased but gas would fill most of the gap,” said Frank Yu, Woodmac’s principal consultant for its Asia power and renewables team. By 2030, up to an additional 13 million tons of LNG could be needed to fill the gap, Yu estimates.
Despite Japan’s plans to build over 50 GW of renewable capacity through 2030, Yu warns high costs in Japan would make an accelerated rampup challenging.
But coal would continue to have a role in Japan as around 6.1 GW of ultrasupercritical and integrated gasification combinedcycle coal plants are now under construction. “With higher operational efficiencies, adding a significant volume of newer units to replace lessefficient plants would clearly support a continued role for coal in Japan’s power mix,” Yu said.