Japan, one of the world’s leading LNG buyers, is shifting its focus on securing energy supplies to next year as its inventories have been boosted by lower demand and the market is expected to become increasingly tight as Europe continues replacing Russian natural gas imports.

“Winter of 2023 is looming on many buyers’ minds, as the LNG market is expected to tighten on the back of Europe’s growing demand as more LNG import capacity is installed and China returns to spot markets,” said Vortexa Ltd.’s Felix Booth, head of LNG.

But Japan is still relatively well placed next year, with a healthy number of term contracts largely shielding buyers in the country from volatile spot prices, he told NGI. 

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Japan’s gas inventories are higher than average this year. As of Oct. 30, a government survey showed that Japanese utilities have 2.5 million tons (Mt) of gas, or 36% higher than the five-year average of 1.84 Mt for the same period. Next year, however, could be a different story.

“In the current energy crisis, there are few options for buyers and utilities to lock in additional LNG for winter in 2023 or 2024,” Booth said.

“Some – not Japanese companies – are purchasing 20 years of LNG with additional bridging volumes before 2025 based on a small discount to Japan-Korea Marker spot LNG price assessments,” he added. “Hence, many are looking to other fuels to boost their national energy balances.”

For Japan, more nuclear and coal-fired power generation will have to be part of the solution for the next few years, according to Vortexa.

Earlier this year, Prime Minister Fumio Kishida announced the restart of seven reactors by the summer of 2023, which will help reduce reliance on gas imports. Japan’s energy plans now call for nuclear plants to generate 20% of the country’s power generation by 2030.

Japan’s Ministry of Economy, Trade and Industry has proposed extending the lifespan of nuclear reactors beyond the current 60 years to reduce carbon emissions and ensure stable energy supplies. The ministry hopes to make a final decision on their plans this year.  

Japan has continued to rely on aging coal-fired power plants to meet power demand during the energy crisis. The nation’s largest power producer, JERA Co. Inc., plans to startup a new 1.07 GW coal-fired power plant in central Japan this year.  

“There are two basic issues of concern for Japan next year, and they are interconnected,” said Poten & Partners’ Jason Feer, global head of business intelligence.

Although Russia supplied gas to Europe during 2022, those deliveries have been cut significantly. The absence of any Russian imports to Europe will have an impact on 2023-2024 storage levels next year, Feer told NGI. Russian imports, combined with a major increase in LNG deliveries, enabled Europe to fill inventories completely.

Russia is not expected to supply much pipeline gas to the continent next year, Feer said. “And even with a normal winter, Europe will draw down inventories this winter and have to buy aggressively to fill storage facilities. 

“Weak Chinese LNG demand this year has left Europe with more available supply, but if China returns to buy LNG next year, it will be a problem for both Europe and Asian buyers. Japan, South Korea and other South Asian buyers have tried to avoid going into the spot market because of high prices.”

However, the Japanese government has implemented several measures over the past two months to help meet this year’s winter gas demand, and these measures could remain in place to meet gas demand for the 2023-2024 winter season.

The Japan Bank for International Cooperation said it would lend nearly $700 million to JERA to help the company buy LNG this winter. The government announced another $875 million loan earlier in October to help secure LNG cargoes and avoid shortages this winter. 

“As resource prices continue to rise and a stable supply of electricity is recognized as an urgent issue … Financing JERA with this loan is intended to support a stable supply of electricity by securing a stable supply of energy to Japan,” the bank said in a statement. 

As a follow-up to providing financial support for utilities, Japan’s energy minister Nishimura Yasutoshi said the Japan Oil, Gas and Metals National Corp. would be allowed to buy LNG this winter if private companies can’t afford purchases.

The government has asked residential and industrial consumers to conserve electricity this winter and laws will be amended to allow Japan’s energy minister to request large consumers to restrict gas use if supplies are limited or there is a gas emergency.

“As was the case this summer, we have not set a numerical target for energy consumption over the winter months, but would like to ask the entire country to cooperate in conserving energy within a reasonable range,” Nishimura said earlier this month.

To secure enough LNG supply for the upcoming winter, Nishimura asked Malaysia’s Petroliam Nasional Berhad (Petronas) to replace cargoes lost this year when the company declared force majeure on gas supply from its Malaysia LNG facility due to a pipeline leak. 

“Lower supply into Europe, plus expectations of stronger competition for available supply next year are leading many analysts to worry that next year could be a lot worse than this year,” Feer said.