Japan – a global natural gas empire. Effective cooperation between government, shipowners and industry

By Marek Gryzbowski

Japan ignored climate critics and built a global natural gas empire. Every six hours, a cargo of liquefied natural gas controlled by a Japanese company leaves a port somewhere in the world. The tankers, which carry a quarter of all LNG shipments worldwide, are just the tip of the iceberg of Japan’s gas empire, says Stephen Stapczynski, a Bloomberg Green reporter.

Japan is a leading supplier of equipment for natural gas facilities, including power plants. Japan also owns the world’s most valuable fleet of liquefied natural gas (LNG) ships, according to VesselsValue’s 2024 data, followed by Greece and China.

“The value of Japan’s LNG fleet reached $37.8 billion in 2024,” VesselsValue, a Veson Nautical subsidiary, reported earlier this year. The value of Japan’s LNG fleet has increased from $30.3 billion since the last VesselsValue report in November 2022. Among the leading nations with national fleets, Japan has the highest value fleets of LNG and LPG carriers. Japanese shipowners also outperform other nations in terms of fleet size.

At the beginning of this year, Japanese operators had 202 LNG carriers and 344 LPG carriers. Japanese shipowners MOL and NYK dominate the market. The LNG carrier fleet at the end of 2023 numbered 772 ships, and 41 will enter the market in 2024, according to the 2024 Annual Report of the GIIGNL (International Association of Liquefied Natural Gas (LNG) Importers), which was published in July this year.

LNG giants
MOL operates a fleet of 97 LNG carriers, the largest fleet of LNG carriers in the world (as of 2023), and began operating ice-class LNG carriers in 2018. MOL is a pioneer in maritime LNG transport. Japan’s first LNG carrier, the Senshu Maru – jointly owned by three Japanese shipping companies and operated by MOL – entered service in 1984.

Japanese shipping giant NYK announced in March that its fleet of operational liquefied natural gas (LNG) carriers had grown to 91 carriers. NYK operates a fleet of 78 of its own LNG carriers. It also operates 13 LNG carriers chartered since March this year. NYK’s management announced that it had “obtained new long-term stable contracts in the LNG carrier industry and increased the number of engaged vessels to over 120 by fiscal year 2027,” the “LNG Prime” portal reported. LNG carriers are mainly equipped with gas-powered engines.
In addition to LNG carriers, NYK is expanding its fleet of “environmentally friendly” ships, including LNG-powered ships, LPG-powered ships and methanol-powered ships. According to NYK, at the end of March this year, the operator had 17 LNG-powered ships and two LNG bunkering ships in its fleet.
NYK also operates 13 car carriers with gas-powered engines, two bulk carriers with LNG installations and two shuttle tankers with such systems. NYK took delivery of its seventh PCTC with gas-powered engines in October last year. Sweet Pea Leader is another car carrier that is part of the plans to introduce PCTCs with LNG fuel systems. More car carriers will join the fleet by 2028. There will be 20 of them in total.

 

Shipowners Support Japan’s Industry
“With enthusiastic government support, corporate Japan is now offering a complete package to countries looking to replace aging, uneconomic coal-fired power plants with gas. Japanese manufacturers will supply the technology and parts, utilities will supply the fuel, and banks will provide financing,” Bloomberg Green reporters Aaron Clark and Stephen Stapczynski suggest.

Japan’s support of the natural gas industry has fueled the rapid expansion of the $250 billion LNG market over the past half-century. And while the United States and other exporters continue to benefit from that growth, Japan, with few gas reserves of its own, has become indispensable at every link in the supply chain.

Big Japanese companies made at least $14 billion from gas-related business in the fiscal year ending in March 2024, Bloomberg calculates, roughly equal to the combined profits of the country’s largest consumer electronics makers.
Japan will use less natural gas in 2022 than it did in 2009, according to the EIA, largely due to slower economic growth, lower industrial demand, high international LNG prices and continued improvements in energy efficiency. EIA experts suggested that the decline in natural gas use in the power sector will continue.

“Although LNG use has declined in recent years, we expect LNG to continue to play a significant role in Japan’s power generation mix in the medium term. Natural gas-fired generation accounted for 34% of generation in 2022—the largest share of any fuel,” the EIA said.

Coal-fired power plants provided 31% of the electricity. The Japanese government’s strategy is that “as coal-fired power plants continue to phase out and generate more electricity from renewable sources, natural gas-fired power plants will continue to provide power to stabilize variable renewable energy supplies.”

Japan – LNG storage giant
The EIA emphasizes that Japan has “vast natural gas storage capacities that contribute to the country’s energy security and help meet seasonal demand peaks.” Japan imports about 98% of its natural gas by sea in the form of LNG. LNG for consumption and additional reserves or supplies are stored in aboveground cryogenic storage tanks located at more than 30 Japanese LNG import terminals.

Japan has the world’s largest LNG storage capacity, estimated at a total of 425.1 billion cubic feet (Bcf) of natural gas, according to data from the International Association of Liquefied Natural Gas (LNG) Importers (GIIGNL). The EIA estimates that between 2009 and 2023, Japan’s LNG reserves ranged from 32% to 66% of available LNG storage capacity.
In order to ensure adequate storage conditions, Japan imported almost 67 million tons of gas in 2023. And it should be noted that the supply of LNG in 2023 on the global market increased by 1.7% y/y to 409.9 million tons. The largest exporter is the United States, which has finally overtaken Australia and Qatar. Volumes from the US have almost doubled in the last 5 years. The European Union has now overtaken China and Japan as the largest importer of LNG – experts from Banchero Costa report based on data from ship tracking by Maritime Refinitiv (now LSEG). Japan’s energy policy assumes a reduction in the share of coal in electricity generation from 31% in 2022 to 19% by 2030 and the share of electricity generation from power plants using crude oil from 4% in 2022 to 2% by 2030.

 

Fleet Supports Industrial Expansion
About 20% of the LNG carrier fleet is owned by owners based in Japan. 16% of the merchant fleet is owned by owners based in Greece. Chinese owners account for 13% of the merchant fleet, and UAE-based GCC Fuel Supply has 8% of the fleet. 7% of LNG carriers are owned by owners based in South Korea.

Only Japan sees its LNG carrier fleet as part of a broader policy and industrial expansion. “Japan’s support for industries that make products that can be used industrially for natural gas has fueled the rapid expansion of the $250 billion LNG market over the past half-century. Japan, with few gas reserves of its own, has become indispensable at every link in the supply chain,” Bloomberg analysts note.
“The industry simply couldn’t be where it is without Japan,” said Peter Coleman, who until 2021 headed Woodside Energy Group Ltd., Australia’s largest LNG exporter. For a long time, the Japanese have been “trying to diversify into new markets and open up new markets.” According to Bloomberg calculations, large Japanese companies made at least $14 billion in gas-related profits in the fiscal year ending in March, roughly equal to the combined profits of the country’s largest consumer electronics manufacturers. Large Japanese commercial banks, insurance companies, engineering firms and manufacturers also benefit from gas businesses and related business activities.

Gas on maritime routes
The scale of this activity should be related to global gas turnover on maritime routes. In 2023, most markets recorded increases in supply and demand for LNG in maritime transport. In 2023, cargo transported by LNG tankers increased by 1.7% y/y to 409.9 million tons. In the period January-December 2023, deliveries from the United States increased by 12.0% y/y to 88.9 million.

On the other hand, deliveries from Australia reached 80.8 million, from Qatar 78.6 million tons, from Russia 30.9 million tons. In the January-December 2023 period, the European Union’s imports increased by 1.9% y/y to 102 million tonnes, China’s by 11.4% y/y to 71.6 million tonnes, Japan’s by 9.2% y/y to 66.9 million tonnes, and South Korea’s by 3.5% y/y to 45.5 million tonnes.

Japan quickly recovered from the Fukushima disaster in 2011, which shut down 54 nuclear reactors. In 2015, Japan began restarting reactors earlier than expected. At the same time, demand for electricity was falling. Japan recorded a gas surplus. Utilities and trading houses began looking for opportunities to sell the surplus abroad and set up sales offices in Singapore and London.

They were joined by Japanese manufacturers and utilities looking for new markets for turbines or pipeline networks. Trade activity was directed towards countries in the Pacific region, such as Thailand, Vietnam, the Philippines, Bangladesh and India. In these countries, the demand for electricity was growing. The Japanese government supported the governments of countries developing gas-based energy and, at the same time, Japanese companies. Japan provided financing for investments in new supplies, import terminals and other infrastructure.

 

$40 billion in gas business
– In total, Japanese public institutions have provided loans for almost $40 billion for LNG export facilities since 2012 – reports Bloomberg, citing an analysis conducted by the environmental group Oil Change International. The state-owned JBIC (Japan Bank for International Cooperation) has not spared support for Japanese manufacturers of turbines and equipment for gas-based energy. Since 2016, JBIC has lent over $1 billion to support the construction of LNG facilities in Australia, investments in Vietnam and the export of turbines manufactured in Japan for a gas power plant in Mexico – lists Stapczyński. Private lenders have followed in the footsteps of the state bank and entered the gaps in the market created by the withdrawal of banks.
– There is a tendency in Western banks to stop financing LNG projects because it is a fossil fuel – said Helle Kristoffersen, president of Asia at TotalEnergies SE, an LNG producer, at a conference in Tokyo in June this year. and emphasized that “Japanese banks are much more pragmatic,” Bloomberg quotes.
Operating on the global market is a very lucrative venture for Japanese companies. Mitsubishi Heavy Industries (MHI) produces one third of the world’s gas turbines and is the undisputed market leader. MHI assumes that the Group’s revenue will grow to a record 5.7 trillion yen (35 billion dollars) in the next three years.
Mitsubishi Power, the energy solutions brand of Mitsubishi Heavy Industries, Ltd., won the highest market share in terms of megawatts in 2023. The global share of the gas turbine market approached 36%, according to McCoy Power Reports. The company secured a 56% share of the Advanced class gas turbine market. This is another year in a row in which Mitsubishi Power has achieved the highest global share of the gas turbine market.
Mitsubishi Corp. earned more than one-fifth of its profits in 2023 from natural gas operations. MicOcean CEO De la Rey Venter commented on the company’s activity in connection with EIG’s investment in Australia: “Mitsubishi Corp. is a pioneer in the global LNG industry and has consistently demonstrated its expertise and foresight in identifying valuable opportunities.” The press release said Mitsubishi’s LNG investments include 12 projects in eight countries and that the Japanese company has more than 50 years of experience in the LNG sector.

Mitsubishi has LNG projects in Australia, North America and Southeast Asia. The company views natural gas as, in its words, “a source of balance for renewable intermittent, as a replacement for coal and oil, as an energy source for hard-to-consume sectors and as a feedstock for next-generation energy.” The announcement of the investment in MidOcean comes days after MidOcean said it had completed the acquisition of Tokyo Gas Co. Ltd.’s stake in several LNG projects in Australia.
Mitsui OSK, the aforementioned world’s largest owner of liquefied gas carriers, intends to increase its fleet of LNG carriers by 50%, and Nippon Steel, Japan’s largest steel producer, has new contracts for the supply of pipes. And so, in less than 20 years, thanks to the coordinated, long-term policies of private companies and the government and state bank, Japan has become a leading player in the global market for natural gas transported on sea routes. The Japanese gas business network includes countries located on all continents. This is perfectly illustrated by the map developed by Bloomberg analysts.