‘Gas Saving’ Scheme Amid Increasing LNG Supply Concerns

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Japan’s Ministry of Economy, Trade and Industry intends to introduce a scheme asking city gas consumers and large end-users to conserve gas usage in times of serious LNG supply disruptions, says an article published in Spglobal.

Emergency measures

METI discussed the idea of “gas saving” measures during a working group under its electricity and gas policy subcommittee July 11, when expert committee members pointed out the need for such emergency measures in the event of Russian LNG supply disruptions.

The METI working group intends to compile an interim policy report “as soon as possible” with an eye to implementing the scheme by the winter demand season, the source said.

Long-term contracts

Once implemented, it will be the first of its kind measure for gas usage in Japan, although there are various types and levels of saving measures for electricity use in the country.

“As the global LNG procurement environment is increasingly becoming severe, should there be any disruption in [LNG] procurement from long-term contracts, a basic response is to avert any shortage in the supply and demand [balance] by working out the security and procurement of LNG with the maximum possible effort,” METI said in its documents presented at the working group.

LNG supply security

If there is any tightness in the supply-demand balance for LNG even after efforts to ensure LNG supply security, METI intends to consider introducing a scheme to reduce gas usage via voluntary efforts without hindering consumers’ life and economic activities, as well as the steps to be taken beyond voluntary gas-saving efforts if the situation is still not resolved, according to the documents.

Nationwide request

During the working group, Taichi Noda, METI’s director of gas market office, proposed the idea about making “gas saving” requests in event of such needs to all of consumers by a supply network or retail business basis instead of making a nationwide request because of the varied nature of city gas businesses.

This is because if city gas supply gets suspended due to a particular project supply suspension, all consumers and end-users are affected, or retail gas businesses face the tightening of wholesale gas supply because of wholesellers’ LNG procurements, these affected businesses should make their “gas saving” requests depending on the supply situation, Noda said.

Japan’s city gas demand typically peaks over December-February for heating purposes.

Supply concerns

The policy move by METI comes as the ministry urges domestic LNG importers to speed up securing alternative supplies to Russian LNG and accelerates its own consideration of contingency plans, a METI source told S&P Global Commodity Insights July 7.

METI’s already heightened concern over potential Russian LNG supply disruptions notched even higher after Russia issued a decree involving an operatorship shakeup of the Sakhalin 2 LNG project, the source said.

Supply contingency

The Japanese importers should take it “more realistically” to secure alternative supply sources to Russian LNG to be prepared for supply contingency, the source said, strengthening the ministry’s earlier position to reduce Russian supply dependency.

Russia accounted for 9% of Japan’s total LNG imports of 74.32 million mt in 2021, its fifth largest supplier, according to data from Japan’s Ministry of Finance.

Production capacity 

Japan’s Russian LNG imports by gas utilities will account for about 9% in fiscal year 2022-23 (April-March), down from 10% in FY 2021-22, METI said May 17 at its electricity and gas policy subcommittee, citing FY 2022-23 supply plans by the utilities as of early April.

Over half of the 9.6 million mt/year LNG production capacity at the Sakhalin 2 project at Yuzhno-Sakhalinsk in Russia, in which Japan’s Mitsui has a 12.5% stake and Mitsubishi 10%, is committed to Japanese offtakers.

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Source: Spglobal

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