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Japan's Gas & Electricity Market

Reform: The Third Revolution

Hiroshi Hashimoto Senior Analyst, Gas Group

Institute of Energy Economics, Japan - IEEJ

IEEJ © 2019

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5 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 121 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Henry Hub

New York Citygate

NBP

Japan LNG average

Japan spot LNG

Asian spot LNG

Korea LNG average

China LNG average

JCC

Units: USD / million Btu (left), USD / bbl crude oil equivalent (right)

Data Sources: Customs Statistics, ICE, PRAs

Rising

prices

LNG projects

targeting USA

Shale

revolution

Fukushima

crisis

Falling

prices

LNG

production

expansion

Global Background

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Market Reform Brings Changes

• Unprecedented but anticipated reform

• Ambitious but careful process since 1995

• Largest and most diversified LNG market

• Companies enter into each others’ homes

• Companies and customers change

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2.8%

7.9%

5.9%

3.9%

6.3%

7.2%

5.5%

3.5%

TOKYO GAS TEPCOEP TOHO GAS CHUBU ELECTRIC POWER

OSAKA GAS KANSAI ELECTRIC POWER

SAIBU GAS KYUSHU ELECTRIC POWER

KANTO CHUBU KINKI KYUSHU

Competition Fierce in Big City Areas:

Customer Switching Rates After One Year of City-Gas and Electric

Power Retail Liberalisation

(Source) Compiled by the authors based on materials provided by the Organization for Cross-Regional Coordination of Transmission Operators, Japan (OCCTO) and the Electricity and Gas Market Surveillance Commission (EGC)

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Historical Shares of Sales Volumes by New Entrants in

the City-Gas and Electric Power Markets

0 0.10.9

1.9 2 2 1.8

3.8

5

7.48.1

9.710.1

12.2

13.5

16

17

15.3

12.111.7

13.1

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1.7 1.9 2 2.3 2.6 2.5 2.83.5 3.6 3.5

4.2

5.2

7.6

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18

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

(%)City-gas Electric power

(Source) Compiled by the authors based on materials provided by the Ministry of Economy, Trade and Industry (METI)

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Trends in Competition

• Packaged offers

• Fiercer competition in big city areas

• City-gas vs. power companies

• Different partners in different segments

• Monitored by different authorities

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The Latest LNG Terminal Third-Party Use Regime

To enable third parties to utilise unused capacity

Part of the revised Gas Business Act enacted in April 2017

Prohibiting owners of primary LNG receiving terminals

from rejecting third parties

Before the latest regime, third-party use had been at

discretion of owner

200,000 kl threshold

Not only those terminals owned by city-gas companies

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18 out of 32 Terminals are covered

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Terminal operator Terminal Storage (kl) Note*

1 Hokkaido Gas Hakodate Minato Terminal 7,100 A

2 Japex Yufutsu Terminal 2,700 A

3 JXTG Energy Kushiro LNG Terminal 10,000 A

4 Tobu Gas Akita LNG Terminal 12,000 A

5 Sendai City Authority Minato Terminal 80,000 B

6 Tohoku Electric PowerShin Sendai Therma Power

Station320,000 C

7 Chubu Electric PowerJoetsu Thermal Power

Station360,000 C

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Shikoku Electric Power

Cosmo Oil

Shikoku Gas

Sakaide LNG Terminal 180,000 B

Takamatsu Terminal 10,000 A

Matsuyama Terminal 10,000 A

10 Hiroshima Gas Hatsukaichi Terminal 170,000 B

11 Okayama Gas Chikko Terminal 7,000 A

12 Shikoku Electric Power Yanai Terminal 480,000 C

13 Saibu Gas Nagasaki Terminal 35,000 B

14 Nihon Gas Kagoshima Terminal 86,000 B

9 Shikoku Gas

*Reasons not to be covered by the third-party use regime

A: Secondary receiving terminal; B: Smaller storage less than 200,000 kl; and C: Dedicated only to

power generation

Terminal operator Terminal Storage (kl)

1 Hokkaido Gas Ishikari LNG Terminal 380,000

2 JXTG Energy Hachinohe LNG Terminal 280,000

3 Japex Soma LNG Terminal 230,000

4 Nihonkai LNG Nihonkai LNG Niigata Terminal 720,000

5 Inpex Naoetsu LNG Terminal 360,000

Negishi LNG Terminal 999,000

Ohgishima LNG Terminal 850,000

Sodegaura LNG Terminal 1,385,000

Hitachi LNG Terminal 230,000

Minami Yokohama Thermal

Power Station LNG Terminal181,000

Sodegaura Thermal Power

Station LNG Terminal1,275,000

Higashi Ohgishima Thermal

Power Station LNG Terminal540,000

Futtsu Thermal Power Station

LNG Terminal1,110,000

8 Shizuoka Gas Sodeshi Terminal 337,200

Chita LNG Joint Terminal 300,000

Chita Midorihama Terminal 620,000

Chita LNG Terminal 640,000

Toho Gas Yokkaichi Terminal 160,000

Chubu Electric Yokkaichi LNG

Center320,000

11 Chubu Electric PowerKawagoe Thermal Power Station

LNG Terminal840,000

Senboku Terminal 1 320,000

Senboku Terminal 2 1,585,000

Himeji Terminal 740,000

Himeji LNG Terminal 520,000

Sakai LNG Center 560,000

14 Mizushima LNG Mizushima LNG Terminal 320,000

15 Kyushu Electric Power Tobata Terminal 480,000

16 Saibu Gas Hibiki LNG Terminal 360,000

17 Kyushu Electric Power Oita Terminal 460,000

18 Okinawa Electric PowerYoshinoura Thermal Power

Station LNG Terminal280,000

10Toho Gas

Chubu Electric Power

12 Osaka Gas

13Kansai Electric Power

Sakai LNG

6 Tokyo Gas / Nijio

7 TEPCO Fuel & Power

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Toho Gas

Chubu Electric Power

Chita LNG

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Observation

• Difficulty to find unused capacity at purpose-built terminals

• Users tend to construct rather than lease

• Voluntary initiatives to optimise capacity

• Open seasons for new capacity

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All TPAs are not Created Equal in Europe

• Some new terminals are exempted

• An exempted terminal may provide services to third

parties under contracts

• Multiple terminals may be operated by a single network

operating company

• LNG has represented only one-tenth of gas

• Untested busy operations

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ＡＩＣＨＩ

・LNG terminal (in operation)

・LNG terminal (planned/under construction)

・High pressure pipeline (in operation)

・High pressure pipeline (planned/ under construction)

ＴＯＫＹＯ

Ishikari LNG Terminal Hokkaido Gas 380,000 kl (2 tank)

Yoshinoura thermal power plant Okinawa Electric 280,000 kl (2 tanks)

Shin-Sendai thermal power plant Tohoku Electric 320,000 kl (2 tanks)

Sendai LNG terminal (Sendai City gas bureau) 80,000 kl (1 tank)

Higashi-Niigata LNG terminal Nihonkai LNG 720,000 kl (8 tanks)

Naoetsu LNG terminal INPEX 360,000 kl （2tanks）

Joetsu thermal power plant Chubu Electric 540,000 kl （3 tanks）

Sodegaura LNG terminal Tokyo Gas/Tokyo Electric 2,660,000 kl (35 tanks）

Futtsu LNG terminal Tokyo Electric 1,110,000 kl (10 tanks)

Ogishima plant Tokyo Gas 850,000 kl (4 tanks) Negishi plant Tokyo Gas/ Tokyo Electric 1,180,000 kl (14 tanks)

Chita LNG facility Chita LNG 640,000 kl (7 tanks)

Chita LNG joint terminal Chubu Electric/ Toho Gas 300,000 kl (4 tanks)

Chita Midorihama plant Toho Gas 620,000 kl (3 tanks)

Yokkaichi LNG center Chubu Electric 320,000 kl (4 tanks)

Kawagoe LNG Terminal Chubu Electric 840,000 kl (6 tanks)

Yokkaichi plant Toho Gas 160,000 kl (2 tanks)

Sakai LNG center Sakai LNG 560,000 kl (4 tanks)

Mizushima LNG terminal Mizushima LNG 320,000 kl (2tanks)

Hatsukaichi plant Hiroshima Gas 170,000 kl (2 tanks))

Yanai LNG terminal Chugoku Electric 480,000KL(6 tanks)

Tobata LNG terminal Kita-Kyushu LNG 480,000 kl (8 tanks)

Nagasaki plant Saibu Gas 35,000 kl (1 tank)

Kagoshima plant Nihon Gas 86,000 kl (2 tanks)

Oita LNG terminal Oita LNG 460,000 kl (5 tanks)

Sakaide LNG plant SakaideLNG 180,000 kl (1 tank)

Himeji plant Osaka Gas 740,000 kl (8 tanks)

Senboku No. 2 LNG terminal Osaka Gas 1,585,000 kl (18 tanks)

Senboku No. 1 LNG terminal Osaka Gas 90,000 kl (2tanks)

Hibiki LNG terminal Saibu Gas/ Kyushu Electric 360,000 kl (2 tanks)

Hitachi LNG terminal Tokyo Gas 230,000 kl (1 tank)

Hachinohe LNG terminal JX Nippon Oil & Energy Corporation 280,000 kl (2tanks)

Toyama Shin thermal power plant Hokuriku Electric

Higashi-Ogishima LNG terminal Tokyo Electric 540,000 kl (9 tanks)

Shimizu LNG (Sodeshi) terminal Shizuoka Gas/Tonen General Sekiyu 337,200 kl (3 tanks)

Himeji LNG management facility Kansai Electric 520,000 kl (7 tanks)

Hitachi-Onahama pipeline Tokyo Gas 2020(planned)

Hitachi-Kashima pipeline Tokyo Gas 2020(planned)

Ibaraki-Tochigi pipeline Tokyo Gas

Gunma No2 pipeline Tokyo Gas 2020(planned)

Koga-Moka pipeline Tokyo Gas 2018(planned) Saito pipeline Tokyo Gas

Kyusyu Hokubu pipeline Saibu Gas 2020

Soma-Iwanuma pipeline JAPEX 2018(planned)

Himeji-Okayama pipeline Osaka Gas 2014～

Mie-Shiga pipeline Osaka Gas/Chubu Electric 2014～

Toyama pipeline INPEX 2016～

Shizu-Hama pipeline Shizuoka Gas/Chubu Gas 2015～

・Middle pressure pipeline (in operation)

Koga pipeline Saibu Gas

Pipeline (under investigation) Hiroshima Gas

・High pressure pipeline (proposed)

Source: Compiled by the Agency of Natural Resources and Energy based on data provided by companies

Amagasaki-Seishin pipeline Osaka Gas 2027(planned)

● ● ●

● ● ● ● ● ● ● ●

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Soma LNG terminal JAPEX 230,000kl (1 tank)

Nobeoka

Niihama LNG Terminal 230,000 kl (1 tank) (2022)

Kushiro

Yufutsu Hakodate

Akita

Okayama

Takamatsu

Natsuyama

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Supply Rises from the New Big 3

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(million tonnes) Australia Qatar United States

(Data Source) Statistics from authorities

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China Rises As The Largest Natural Gas Importer

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Korea China's LNG China's pipeline import Japan

Data Sources: Customs Statistics

IEEJ © 2019

Assessment and Consideration

• New Service Menus for Consumers

• Energy Providers Respond More Proactively

– to be more competitive locally and globally

• Infrastructure Should Be Treated Differently to Fit with

Local Requirements

• Interaction Between Domestic and Global Markets

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Presentation Disclaimer

This presentation is given for general informational purposes only and is not intended to influence any specific actions.

Views expressed in this presentation are the author’s own and do not represent any official positions of the organisation

that the author belongs to.