Page 6 - AsiaElec Week 28

AsiaElec COMMENTARY AsiaElec
Japan’s midstream diversity push
Supporting LNG market liquidity should provide backup options for Japanese companies
JAPAN
WHAT:
Japanese companies are investing in regas projects around Asia
WHY:
In addition to the straightforward business case, seeking alternative destinations for overcontracted cargoes will provide bene ts
WHAT NEXT:
Japanese support for infrastructure plans also provides Tokyo with soft power opportunities
JAPAN remains the world’s leading LNG importer, but times are changing. As uncertainty emerges over future LNG demand in the coun- try, its corporate players are investing in regasi- cation terminals in the broader region in order to provide options.
e Japanese government is supporting this expansion. In 2017, the Japanese government unveiled a $10bn support package for local com- panies to chase regional LNG terminal contracts. e Japan Bank for International Co-operation (JBIC) and Nippon Export and Investment Insurance are among those supporting the gov- ernment’s public-private initiative. is govern- ment sponsored push seems to be having the desired e ect.
JBIC has noted the importance of exibil- ity and liquidity in the market, which comes through a diversity of supply sources and pric- ing structures. e Japanese government set out its market development plans in May 2016 and its Fair Trade Commission ruled destination clauses were likely out of step with monopoly laws. While progress has been slow on codifying this, it is likely to play an increasingly important part in market liquidity. e bank went on to note Japanese companies were taking steps to “spur LNG demand in Asian countries” and that it would play a part in such a move.
Walking the walk
On July 1, JXTG Nippon Oil & Energy said it had signed a memorandum of understanding (MoU) with Petrolimex to study Vietnam’s LNG and natural gas market. JXTG Nippon is a unit of JXTG Holdings, which owns an 8% stake in Petrolimex.
e report will be used to shape Petrolimex’s planned LNG regasification terminal at the Van Phong Port in Khanh Hoa Province. e receiving terminal will replace a planned $5bn petrochemical complex, a er Petrolimex aban- doned the downstream project in late 2018 over concerns of a re nery capacity overhang in the country.
Petrolimex has already signed an MoU with the Vietnam Electricity (EVN) that will see the former supply feedstock to two 1,500MW gas- red thermal power plants (TPPs).
Mitsubishi and Lloyds Energy are, similarly, working on plans for an LNG-fuelled merchant power plant in the Philippines. The plan has not yet been submitted but the 1,200MW plant could be constructed within two years from the start of work
Furthermore, in June, Mitsui and a con- sortium led by Bangladesh’s Summit Group – including Mitsubishi and JERA – reportedly submitted expressions of interest (EoIs) to build the country’s rst onshore LNG receiving termi- nal. e EoIs were for the design, engineering, procurement, construction and commission- ing of a 7.5mn tpy terminal. Tokyo Gas won the contract to carry out the feasibility study for the terminal, which the government said it expected to come online in 2023.
In March, Tokyo Gas and Philippine power producer First Gen won approval from the Manila government to build a 5.26mn tpy LNG terminal in Batangas Province. Tokyo Gas intends to hold a 20% stake in the project, which is to start operations in 2023.
Tokyo Gas’ efforts in the Philippines and Bangladesh came a er the company launched a three-year 260bn yen ($2.4bn) business plan in April 2018 to boost its overseas earnings to 20% of its targeted operating pro t of 130bn yen ($1.2bn) in nancial year 2020-2021.
In November 2017, JFE Engineering teamed up with Medco Energi to build a 1mn tpy LNG regas facility on the Indonesian island of Batam. The Japanese company, which committed to investing $176mn in the project, agreed to begin designing the project in January 2018 and antic- ipated completing the plans this year.
Japanese companies are also playing a role in Australia’s regas plans. JERA and Marubeni are working together on a plan for New South Wales, while Mitsubishi is backing a plan in South Australia.
Rationale
It might seem counterproductive for Japan to support such infrastructure projects in other countries, but this strategy has come about as a response to its speci c circumstances. Spot LNG prices have fallen but most pricing in Asia remains driven by the oil link, making the feed- stock fairly expensive. As nuclear power plants restart – in a move backed by political will and judicial rulings – LNG faces competition in the country.
Given this pressure, it is the sensible option for Japanese companies to bolster alternative destinations for contracted supplies. Changes are coming to the entire sector, with Japanese com- panies also seeking more exible supply options. Transforming themselves from point-to-point managers to adaptable suppliers and builders should prove to be a rewarding strategy.™
As nuclear power plants restart – in a move backed by political will and judicial rulings – LNG faces competition in Japan
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w w w . N E W S B A S E . c o m Week 28 16 •July•2019