Japan’s LNG decarbonisation challenge

Since the start of the war in Ukraine, and the subsequent decline in Russian piped gas supplies to Europe, the world has become considerably more focused on natural gas security of supply and affordability. The sustainability characteristics of LNG have become de-emphasized as buyers focus on the immediate supply challenges, and as such LNG-related emissions have perhaps dropped below the radar for many buyers. However, the issue of LNG emissions has definitely not gone away. It is widely expected that as supply security concerns ease later this decade following the ramp up of new supplies, the inevitable challenge of gas and LNG decarbonization will come back into focus for governments, regulators and consumers, and this will feed through to LNG buyers. Buyers will also find themselves coming under increasing pressure to comply with mandatory climate disclosures in their country of origin.

In Japan, LNG supply portfolios are evolving (Figure 1). In terms of supplies contracted from a specific project, with a decline in SE Asian and Middle Eastern supplies across the remainder of this decade, the market will be counter-balanced by a rising share of US and Australian LNG. 

Flexible contracted supplies (which consist largely of contracts with international portfolio players such as Shell, BP, TotalEnergies, Woodside, Petronas, etc.), where the LNG is sourced from multiple supply projects (i.e. portfolio supply), remain relatively consistent across the period, meeting around 13-16% of demand.

While the Japanese market is currently over-contracted with excess volumes largely being traded into the international market, it is expected that by 2028 additional supplies will be required to meet domestic demand. This is despite the overall demand for LNG in Japan falling by around 7% between now and 2031.