Japan’s aggressive new plan for more renewables to replace natural gas is expected to reduce the liquefied natural gas (LNG) market by half this decade.
The stricter guidelines will also lead to Japanese LNG imports dropping by a third by the end of the decade, forcing domestic utilities to abandon long-term LNG deals.
Energy analyst Saul Kavonic of Credit Suisse Group AG pointed out that the shift will further dampen Japanese buyers’ appetite for LNG deals extending beyond 2030. The situation potentially leaves the buyers more vulnerable to short-term price dynamics if demand ends up higher than expected.
The policy shift also created upheaval for LNG suppliers, including those from Qatar, Australia, and the US.
Natural gas has been falling out of favor with some governments that are boosting efforts to slow climate change.
To help replace the 50 percent drop in LNG, Japan will have to restart nearly all of its nuclear reactors.
If the 2030 targets are met, then Japan’s LNG demand could fall by nearly 25 million tons.
Japan imported 74.4 million tons in 2020.
Japanese firms will also think twice before renewing legacy contracts. Japan’s oldest LNG agreement with Indonesia, which had been in place for nearly 50 years, fell apart last year due to uncertainty caused by the coronavirus pandemic.