Recent announcements by the leaders of China and Japan to achieve carbon neutrality in the coming decades could initially increase demand for U.S. liquefied natural gas (LNG), but that demand could be reduced as early as 2030, analysts said.
Japanese Prime Minister Yoshihide Suga on Monday said the country would aim to become a “carbon-neutral, carbon-free society” by 2050, according to his first policy address to the parliament since taking office last month.
“Responding to climate change is no longer a constraint on economic growth,” Suga said. “It is necessary to change the way of thinking that proactive measures against climate change will bring about changes in the industrial structure and economic society, leading to great growth.”
On September 22 Chinese President Xi Jinping told the United Nations General Assembly that the country plans to become carbon-neutral by 2060.
Neither leader provided details of how the lofty goals would be achieved, as the strong economies of both countries are heavily dependent on hydrocarbon fuels.
“The road to net zero will be a long and difficult journey given the current energy mix in Japan comprises 90% hydrocarbon,” Wood Mackenzie’s head of markets and transitions in Asia Pacific, Prakash Sharma, told NGI.
“Gas and coal will play an important role in this transition, at least through to 2030, before new blending options such as co-firing ammonia achieve scale,” Sharma added.
Since Japan imports virtually all the natural gas it consumes in the form of LNG, its LNG demand could increase in that expected transition period.
But Sharma pointed out that Japan’s LNG and coal imports have slowed in the past few years and the push to achieve net-zero emissions “will accelerate the decline post-2030.”
Wood MacKenzie principal analyst Lucy Cullent told NGI that Australian LNG exports to Japan have ramped up in the last two years and would continue to be delivered through the mid-2030s, and a portion of those volumes would still be under long-term contracts in 2040.
Japanese companies have signed a number of 20-year supply deals with U.S. LNG producers that started in the last few years, but they have the flexibility to market those volumes to any country or not take cargoes and just pay their respective liquefaction fees.
Japan has been the second-largest importer of U.S. LNG since exports from the Lower 48 states started in early 2016, buying 160 cargoes through August with a combined volume of 553 Bcf, or 10.6% of all U.S. LNG exports, the Department of Energy (DOE) said in its latest monthly LNG export report.
China has been the fifth-largest importer of U.S. LNG, buying 87 cargoes with a combined volume of 295.4 Bcf, or 5.7%, according to the DOE. However, Chinese imports of U.S. LNG have dropped significantly since early 2019 after the country imposed tariffs on such imports in response to many tariffs President Trump imposed on Chinese goods in the ongoing trade dispute between the two countries.
China is widely seen as an important untapped market for expansion of U.S. LNG export capacity, as so far only one Chinese firm has signed long-term contracts for U.S. supplies. In February 2018, China National Petroleum Corp. (CNPC), a subsidiary of state-owned PetroChina International Co. Ltd., signed two deals totaling 1.2 million metric tons/year (mmty) with Cheniere Energy Inc.
Management at China National Offshore Oil Corp. said last week that the state-controlled producer plans to raise the share of gas to half of its total output by 2035 to contribute to the 2060 target, Reuters reported.
The Center for LNG’s Executive Director Charlie Riedl told NGI Wednesday that proposals “are a strong indicator of the growing market for natural gas” globally.
“As we have seen here in the United States the effort to reduce emissions has happened by switching to natural gas to allow air quality improvements,” Riedl said. ”This has also helped renewables gain a foothold and natural gas is the obvious partner as baseload fuel for the foreseeable future. These announcements likely mean that demand for natural gas and LNG will increase over time as these countries work to meet their climate goals.”
If Japan and China achieve their respective goals, the impact on U.S. LNG could be significant in the longer run. U.S. exporters are eyeing opportunities to modify their infrastructure to also liquefy hydrogen for export as the world moves toward cleaner energy.
Graeme Bethune, CEO of Australian consultancy EnergyQuest, told NGI Wednesday that the “only way” Japan could reach its 2050 target is “by bringing back and expanding nuclear on a huge scale.” Such a scenario “seems unlikely politically but maybe they see this as a way of achieving it,” he said.
“Although Japan was the world’s fourth largest primary energy consumer in 2019, largely from fossil fuels, Japanese energy consumption was only 147.2 gigajoules (GJ) per head, well below the OECD (Organization for Economic Cooperation and Development) average of 178.5 GJ, so Japan is already incredibly energy efficient,” Bethune said. “There is also limited scope for renewables and hydro.”
A carbon price of more than $100/tonne would be needed to promote zero-carbon technologies to help Japan meet its goal, Wood Mackenzie’s Sharma said.
China would need to invest more than $5 trillion in cleaner power generation capacity to reach its goal, Sharma said.
Wood Mackenzie analysts estimate that China’s solar, wind and storage capacities would have to increase 11 times to 5,040 GW by 2050 compared to 2020 levels for the goal to be reached. Coal-fired power capacity would be cut in half while gas consumption would be at the 2019 level. Total power output expands nearly 2.5 times to 18,835 terawatt-hours by 2050 compared to current levels.
“It is definitely a colossal task for a country using 90% hydrocarbons in its energy mix and annually producing more than 10 billion tons of CO2-e, and in addition, accounting for 28% of global total emissions,” Sharma said.
BP plc in its latest annual Energy Outlook released last month forecasted that global LNG trade would expand from a gas equivalent of 425 billion cubic meters (Bcm), or 41.1 Bcf/d, in 2018 to about 1,100 Bcm (106 Bcf/d) by the mid-2030s in both its business-as-usual and rapid growth scenarios. It said by 2050 trade would fall to about 970 Bcm (93.8 Bcf/d) in the rapid-growth scenario and a little more than 1,000 Bcm (96.8 Bcf/d) in the business-as-usual outlook.
© 2021 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 | ISSN © 1532-1266 |