Japan's energy plan makes heroic assumptions: analysts

Japan’s agency for natural resources and energy (ANRE) published in July the first public draft of its sixth Strategic Energy Plan (SEP), which aims to cut greenhouse gases by 46% by 2030.

The headline figures look alarming in terms of the reduction of energy demand and of fossil fuels in particular, but the draft will be refined to include the incentives needed to drive the big shift that is envisaged.

“Japan will finalise the strategy later in this year, and then it will be clearer how the regulatory framework will encourage companies to invest in renewable energy,” consultancy Vortexa's head of LNG Felix Booth told NGW in an interview.

In order to cut greenhouse gas emissions there is some low-hanging fruit: chiefly higher energy efficiency and more energy conservation. Next in line comes a bigger role for renewable energy, compared with the fifth SEP. In 2019, Japan derived 18% of its electricity from renewables. According to the draft of the sixth SEP, this will go up to about 37% by 2030. But while this is twice the percentage seen two years ago, the overall demand figure will be lower.

The renewables targets are achievable – and necessary if Japan is to catch up to progress made by other advanced economies, Booth said. “There is more potential for renewable energy than has been given credit for, with the development of offshore wind only needing the right regulatory incentives.

“The limitations of land-use have been over-played. The country also has big aspirations for hydrogen and ammonia in their net-zero carbon aspirations, although these are allocated a very small percentage in the 2030 strategy.

“But the rhetoric is still ahead of the historical pace of change where these businesses are concerned. Should nuclear restarts or renewables installation falter, LNG is in an ideal place to maintain a much higher share than is targeted.”

But despite the scale of the ambitions, Booth said, “industry is taking note of this announcement, as the government has historically had significant influence over the industry compared with some other countries' governments."

Japan also has to balance the ambition to bring online so much more renewable energy against the much lower cost profile of coal, he pointed out. “Japan's power demand is stagnant and declining in the coming years so adding new capacity means less hours' generation from what is already there.” Coal and gas are treated equally as fossil fuels in terms of the percentage, despite the 50% lower carbon emissions from gas combustion.

Cutting down on the black stuff

The recent emergence of carbon-neutral LNG cargos is another potential lever for Japan. But while it is a good publicity stunt for  buyer and seller, it is perhaps not a reliable method in the long term, as forest fires and other damage have demonstrated the impermanence of some carbon sinks. 

So hydrogen and ammonia have also been added to the list of energy sources. Japan has been among the bigger importers of experimental cargos of zero carbon energy and not just for power generation. Last month Idemitsu took a blue ammonia cargo from Abu Dhabi for its petrochemical and refining operations.

Japan is in the forefront of countries developing potential supplies from overseas, chiefly renewable-energy-rich Australia where green hydrogen projects are under consideration. It is also experimenting with burning hydrogen in power stations.

Japanese companies are also looking at easier and safer ways of transporting it: as well as bonding it with nitrogen to make ammonia, other possibilities include combining it with toluene to make MCH, which is a liquid under normal temperature and pressure, and so it can be transported and stored using conventional oil industry equipment.

These properties could help overcome the two difficulties that engineering giant Chiyoda sees blocking the development of a hydrogen society: there is no long-distance stable and large scale supply chain and there is not much storage capacity. Chiyoda is among the Japanese companies experimenting with MCH in Brunei for decarbonising a refinery, as well as with developing a supply chain in Chubu, with different Japanese partners.

By 2035, Japan intends to ban new sales of pure diesel or petrol cars while vehicles with an electric propulsion system are to account for 20%-30% of new sales of commercial light vehicles. Japan also aims to commercially introduce sustainable aviation fuels (SAF).

The renewables targeted for increased energy generation include solar panels, on and offshore wind turbines and biomass.

The Achilles' heel in the plan is the ramp-up of nuclear capacity that the plan envisages rising from 6% today, or 10 GW, to 21% in the coming nine years and which outstrips the likely level of acceptability among the Japanese public. Bringing so much back online will be outside Tokyo's control, he says.

This view is shared by Rystad, in a research note published August 11: "In absolute terms, Rystad Energy calculates that if the sixth SEP’s targets were to be realised, Japan’s LNG demand in 2030 would be cut by 18mn metric tons/year from our previous estimate of 66mn mt/yr. In our base case, however, the country’s revised plan is only likely to remove 4.6mn mt/yr of demand in 2030, bringing total LNG demand to 61.4mn mt/yr, with the entire reduction coming from the power sector.

"The reason our analysis concludes that Japan will fail to meet its new LNG target share is that the plan overestimates the potential contribution of renewables and nuclear in its power generation."

Similarly, Booth said: "The plan does flag a big cut in LNG of 35mn mt/yr, almost half the annual demand, unless resistance to nuclear means the CCGTs are essential to maintain base load for the grid."

But he said the announcement would nevertheless "have an impact on the Japanese utilities buyer behaviour – domestic demand requires little to no additional long-term LNG sales and purchase agreements, as the legacy contracts will naturally expire over the next nine years. Gone are the days that support from Japanese utilities was essential for project FIDs, LNG developers have been looking to newer markets to provide underpinning contracts for many years."

The stage is therefore set for  a more flexible future, as companies such as Jera and Tokyo Gas buy long-term LNG free on board, with complete freedom of delivery. They will be prepared for variations in Tokyo's success with alternative energy sources and restoring nuclear capacity, while this year's soaring LNG spot market also sends warning signals.