Japan's Gas & Electricity Market Reform: The Third Revolution Hiroshi Hashimoto Senior Analyst, Gas Group Institute of Energy Economics, Japan - IEEJ IEEJ © 2019 Global Background Units: USD / million Btu (left), USD / bbl crude oil equivalent (right) Henry Hub 120 New York Citygate 20 NBP Japan LNG average LNG projects targeting USA 100 Japan spot LNG Fukushima LNG production Asian spot LNG crisis expansion 15 Korea LNG average China LNG average 80 JCC Falling prices 60 10 Rising prices Shale 40 revolution 5 20 Data Sources: Customs Statistics, ICE, PRAs 0 0 5 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 121 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 202 IEEJ © 2019 0 Market Reform Brings Changes • Unprecedented but anticipated reform • Ambitious but careful process since 1995 • Largest and most diversified LNG market • Companies enter into each others’ homes • Companies and customers change 3 IEEJ © 2019 Competition Fierce in Big City Areas: Customer Switching Rates After One Year of City-Gas and Electric Power Retail Liberalisation 7.9% 7.2% 6.3% 5.9% 5.5% 3.9% 3.5% 2.8% TOKYO GAS TEPCOEP TOHO GAS CHUBU ELECTRIC OSAKA GAS KANSAI ELECTRIC SAIBU GAS KYUSHU POWER POWER ELECTRIC POWER KANTO CHUBU KINKI KYUSHU (Source) Compiled by the authors based on materials provided by the Organization for Cross-Regional Coordination of Transmission Operators, Japan (OCCTO) and the Electricity and Gas Market Surveillance Commission (EGC) IEEJ © 2019 Historical Shares of Sales Volumes by New Entrants in the City-Gas and Electric Power Markets 18 (%) 17 City-gas Electric power 16 16 15.3 13.5 14 13.1 12.2 12.1 11.7 12 10.1 9.7 10 8.1 8 7.4 7.6 6 5 5.2 4.2 3.8 4 3.5 3.6 3.5 2.8 2.3 2.6 2.5 1.9 2 2 1.8 1.7 1.9 2 2 0.9 0.7 0 0.1 0 0.3 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 IEEJ © 2019 (Source) Compiled by the authors based on materials provided by the Ministry of Economy, Trade and Industry (METI) Trends in Competition • Packaged offers • Fiercer competition in big city areas • City-gas vs. power companies • Different partners in different segments • Monitored by different authorities 6 IEEJ © 2019 The Latest LNG Terminal Third-Party Use Regime To enable third parties to utilise unused capacity Part of the revised Gas Business Act enacted in April 2017 Prohibiting owners of primary LNG receiving terminals from rejecting third parties Before the latest regime, third-party use had been at discretion of owner 200,000 kl threshold Not only those terminals owned by city-gas companies 7 IEEJ © 2019 18 out of 32 Terminals are covered Terminal operator Terminal Storage (kl) 1 Hokkaido Gas Ishikari LNG Terminal 380,000 Terminal operator Terminal Storage (kl) Note* 2 JXTG Energy Hachinohe LNG Terminal 280,000 3 Japex Soma LNG Terminal 230,000 1 Hokkaido Gas Hakodate Minato Terminal 7,100 A 4 Nihonkai LNG Nihonkai LNG Niigata Terminal 720,000 2 Japex Yufutsu Terminal 2,700 A 5 Inpex Naoetsu LNG Terminal 360,000 Negishi LNG Terminal 999,000 3 JXTG Energy Kushiro LNG Terminal 10,000 A Ohgishima LNG Terminal 850,000 6 Tokyo Gas / Nijio 4 Tobu Gas Akita LNG Terminal 12,000 A Sodegaura LNG Terminal 1,385,000 Hitachi LNG Terminal 230,000 5 Sendai City Authority Minato Terminal 80,000 B Minami Yokohama Thermal 181,000 Shin Sendai Therma Power Power Station LNG Terminal 6 Tohoku Electric Power 320,000 C Sodegaura Thermal Power Station 1,275,000 Station LNG Terminal 7 TEPCO Fuel & Power Joetsu Thermal Power Higashi Ohgishima Thermal 540,000 7 Chubu Electric Power 360,000 C Power Station LNG Terminal Station Futtsu Thermal Power Station 1,110,000 Shikoku Electric Power LNG Terminal 8 Shizuoka Gas Sodeshi Terminal 337,200 8 Cosmo Oil Sakaide LNG Terminal 180,000 B Toho Gas Chita LNG Joint Terminal 300,000 Shikoku Gas 9 Chubu Electric Power Chita Midorihama Terminal 620,000 Chita LNG Chita LNG Terminal 640,000 Takamatsu Terminal 10,000 A 9 Shikoku Gas Toho Gas Yokkaichi Terminal 160,000 Toho Gas Matsuyama Terminal 10,000 A 10 Chubu Electric Yokkaichi LNG Chubu Electric Power 320,000 Center 10 Hiroshima Gas Hatsukaichi Terminal 170,000 B Kawagoe Thermal Power Station 11 Chubu Electric Power 840,000 11 Okayama Gas Chikko Terminal 7,000 A LNG Terminal Senboku Terminal 1 320,000 12 Shikoku Electric Power Yanai Terminal 480,000 C 12 Osaka Gas Senboku Terminal 2 1,585,000 13 Saibu Gas Nagasaki Terminal 35,000 B Himeji Terminal 740,000 Kansai Electric Power Himeji LNG Terminal 520,000 14 Nihon Gas Kagoshima Terminal 86,000 B 13 Sakai LNG Sakai LNG Center 560,000 14 Mizushima LNG Mizushima LNG Terminal 320,000 *Reasons not to be covered by the third-party use regime 15 Kyushu Electric Power Tobata Terminal 480,000 16 Saibu Gas Hibiki LNG Terminal 360,000 A: Secondary receiving terminal; B: Smaller storage less than 200,000 kl; and C: Dedicated only to 17 Kyushu Electric Power Oita Terminal 460,000 power generation Yoshinoura Thermal Power 18 Okinawa Electric Power 280,000 Station LNG Terminal 8 IEEJ © 2019 Observation • Difficulty to find unused capacity at purpose-built terminals • Users tend to construct rather than lease • Voluntary initiatives to optimise capacity • Open seasons for new capacity 9 IEEJ © 2019 All TPAs are not Created Equal in Europe • Some new terminals are exempted • An exempted terminal may provide services to third parties under contracts • Multiple terminals may be operated by a single network operating company • LNG has represented only one-tenth of gas • Untested busy operations 10 IEEJ © 2019 Hachinohe LNG terminal JX Nippon Oil & Energy Corporation 280,000 kl (2tanks) Akita Ishikari LNG Terminal Shin-Sendai thermal Hokkaido Gas power plant 380,000 kl (2 tank) Higashi-Niigata LNG terminal Nihonkai LNG Tohoku Electric 320,000 kl (2 tanks) Yoshinoura thermal 720,000 kl (8 tanks) power plant Sendai LNG terminal Okinawa Electric (Sendai City gas 280,000 kl (2 tanks) Kushiro bureau) 80,000 kl (1 tank) Joetsu thermal power Yufutsu plant Hakodate Chubu Electric Soma-Iwanuma 540,000 kl （3 tanks） pipeline JAPEX Naoetsu LNG terminal 2018(planned)Soma LNG terminal INPEX JAPEX （ ） 360,000 kl 2tanks 230,000kl (1 tank) Toyama Shin thermal Ibaraki-Tochigi ● pipeline Hitachi-Onahama power plant ●●● Himeji LNG ●● Hokuriku Electric ●● Tokyo Gas pipeline management facility Gunma No2 Tokyo Gas Kansai Electric pipeline 2020(planned)Hitachi LNG terminal 520,000 kl (7 tanks) Tokyo Gas Toyama Tokyo Gas Mizushima LNG terminal Himeji plant 2020(planned) pipeline 230,000 kl (1 tank) Mizushima LNG Osaka Gas INPEX 2016～ 320,000 kl (2tanks) 740,000 kl (8 tanks) Hitachi-Kashima pipeline Mie-Shiga pipeline Tokyo Gas Tobata LNG terminal Hatsukaichi plant Himeji- Osaka Gas/Chubu 2020(planned) ＴＯＫＹＯ Koga-Moka Kita-Kyushu LNG Hiroshima Gas Electric Okayama Shizu-Hama pipeline pipeline 480,000 kl (8 tanks) 170,000 kl (2 tanks)) 2014～ Hibiki LNG terminal pipeline Shizuoka Gas/Chubu Tokyo Gas Saibu Gas/ Kyushu Pipeline (under Osaka Gas Gas 2015～ 2018(planned)Saito pipeline Electric Yanai LNG terminal investigation) 2014～ ＡＩＣＨＩ Tokyo Gas 360,000 kl (2 tanks) Chugoku Electric Hiroshima Gas ●● ● 480,000KL(6 tanks) Okayama Sodegaura LNG terminal Kyusyu Higashi-Ogishima Tokyo Gas/Tokyo Electric Hokubu LNG terminal 2,660,000 kl (35 tanks） pipeline Shimizu LNG (Sodeshi) Takamatsu Chita LNG facility Tokyo Electric Saibu Gas terminal Chita LNG 540,000 kl (9 tanks) Futtsu LNG terminal 2020 Shizuoka Gas/Tonen Natsuyama 640,000 kl (7 tanks) Ogishima plant Tokyo Electric Amagasaki-Seishin General Sekiyu Chita LNG joint terminal Tokyo Gas 1,110,000 kl (10 tanks) Niihama LNG Terminal pipeline 337,200 kl (3 tanks) 230,000 kl (1 tank) Chubu Electric/ 850,000 kl (4 tanks) Koga pipeline Sakaide LNG plant Osaka Gas (2022) Toho Gas Negishi plant 2027(planned) Saibu Gas SakaideLNG 300,000 kl (4 tanks) Tokyo Gas/ 180,000 kl (1 tank) Chita Midorihama plant Tokyo Electric Toho Gas 1,180,000 kl (14 tanks) 620,000 kl (3 tanks) Nagasaki plant Saibu Gas Oita LNG terminal Sakai LNG center Kawagoe LNG ・LNG terminal (in operation) 35,000 kl (1 tank) Oita LNG Sakai LNG Terminal 460,000 kl (5 tanks) 560,000 kl (4 tanks) Chubu Electric ・LNG terminal (planned/under construction) Senboku No. 1 LNG terminal 840,000 kl (6 tanks) ・High pressure pipeline (in operation) Nobeoka Osaka Gas Yokkaichi LNG center 90,000 kl (2tanks) Chubu Electric ・High pressure pipeline (planned/ under construction) 320,000 kl (4 tanks) Kagoshima plant Senboku No. 2 LNG terminal ・High pressure pipeline (proposed) Nihon Gas Osaka Gas Yokkaichi plant 86,000 kl (2 tanks) 1,585,000 kl (18 tanks) Toho Gas ・Middle pressure pipeline (in operation) 160,000 kl (2 tanks) 11 IEEJ © 2019 Source: Compiled by the Agency of Natural Resources and Energy based on data provided by companies11 Supply Rises from the New Big 3 (million tonnes) Australia Qatar United States 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 (Data Source) Statistics from authorities IEEJ © 2019 2016 2017 2018 China Rises As The Largest Natural Gas Importer (million tonnes) 80 60 40 20 0 Data Sources: Customs Statistics Korea China's LNG China's pipeline import Japan IEEJ © 2019 Assessment and Consideration • New Service Menus for Consumers • Energy Providers Respond More Proactively – to be more competitive locally and globally • Infrastructure Should Be Treated Differently to Fit with Local Requirements • Interaction Between Domestic and Global Markets IEEJ © 2019 Presentation Disclaimer This presentation is given for general informational purposes only and is not intended to influence any specific actions.