OPTIMISING THE LNG VALUE CHAIN TO ENSURE A ROBUST, RESILIENT & AFFORDABLE SUPPLY

Energy diplomacy and national policies are set to play a bigger role in the coming years as trade between trusted partners increase and governments intervene more in energy markets to finance infrastructure and secure supply via government-to-government deals.

JERA and KOGAS recently agreed to cooperate on joint LNG purchases and swaps to enhance energy security and attempt to limit price fluctuations, which saw Asian spot prices hit a record US$70.50 per mmbtu in August 2022.

Government-to-government agreements such as this highlight the need to establish new partnerships and supply chains to counter geopolitical uncertainty, limit price fluctuations, and maintain energy security. It is also necessary to reduce the cost of production from legacy infrastructure by incorporating new technology in the up and mid stream, whilst introducing new measures to reduce carbon emissions throughout the value chain.

COMMERCIALISING THE HYDROGEN VALUE CHAIN & CLOSING THE GREEN GAP

The hydrogen industry is small, centralised, and carbon intensive. What needs to happen in order for hydrogen to fulfil its potential as a versatile, carbon-neutral fuel?

Green hydrogen is currently 2-3 times more expensive than blue, and up to 10 times more than unabated fossil fuel-based hydrogen. Despite decades of buzz about hydrogen, the market is still in its infancy. Establishing a hydrogen economy that meets national climate requirements, requires cross-sector collaboration and policy support to reduce cost and risk for investors, incentivise low-carbon production and accelerate technology and infrastructure development.

In order to accelerate demand, supply must be expanded to ensure it is competitive.

LEVERAGING PARTNERSHIPS TO CREATE A REGIONAL ROADMAP TO NET-ZERO

As the regional economic and technological powerhouse, Japan has a central role to play in expanding demand for LNG, hydrogen and ammonia.

Establishing new supply chains will help emerging markets decarbonise their economies and achieve energy security, but will require significant investment in infrastructure, shipping, and storage.
Inter-government agreements and collaboration – such as between Japan's Kyushu Electric and Thailand’s PTT Global LNG – will be required to scale new demand and supply hubs throughout Asia-Pacific, reduce the threat of trade flow disruption through key choke points, and reduce costs by sharing investment and procurement.

ESTABLISHING A NEW PATHWAY TO DECARBONISE HARD-TO-ABATE SECTORS

Hard-to-abate industries, including steel, cement, and petrochemicals, use carbon as an integral part of their process, and altogether this sector accounts for about 30% of the world’s greenhouse gas emissions.

Industrial emissions account for around 40% of Japan’s total emissions, representing a huge challenge, but also opportunity to scale its decarbonisations efforts.

Emissions from these sectors can no longer be ignored, as new monitoring equipment and government pledges have forced the industry to act. Japan’s coal-powered thermal plants are testing Ammonia co-firing, alongside CCS/CCUS. However, these measures are high cost, with green hydrogen and ammonia far more expensive than blue versions. Technology and innovation is key to reducing the cost, and expanding applications to decarbonise these sectors.

TRANSFORMING INDUSTRIAL POLICY TO ACCELERATE GROWTH IN TECHNOLOGY

Japan's public and private sectors will need to invest a total of 150 trillion yen ($1.2 trillion) in decarbonisation over the next 10 years to help achieve the nation's ambitious goal of becoming carbon neutral by 2050.

To accelerate decarbonisation throughout the energy value chain, governments are reducing barriers to innovation via deregulation, and introducing incentives similar to the Inflation Reduction Act in the US.

At the same time, it is essential that new commercial opportunities and market mechanisms – like the GX League – are created to fund the transition and empower solution providers to solve tomorrow’s challenges.

UNLOCKING JAPAN’S RENEWABLE ENERGY POTENTIAL BY SCALING PRODUCTION

Renewables and next-generation nuclear form a core part of Japan’s net-zero ambitions for energy generation and green hydrogen production. Forming just 11.5% of Japan’s energy mix, potential for high performance solar and offshore wind are significant.

In addition to that, the untapped geothermal energy reserves in Japan amount to the equivalent output of 20 nuclear reactors. Incentives, subsidies and regulation from the Japanese government have been lagging behind for some time now but there has been a shift in urgency in achieving their goals in early 2023, followed by a swathe of policy announcement in May.