Japanese power play to impact Aust export

AUSTRALIAN LNG and coal producers face a new threat from one of their biggest export markets after Japan declared plans to drastically cut its use of the two fossil fuels by 2030.

Japan in April pledged to nearly double its target for cutting carbon emissions by the end of the decade and has followed that up by sharply cutting its planned use of the two commodities in favour of renewable energy.

Its use of LNG will fall by nearly half by 2030 while coal is set to decline by 40 per cent from current levels, according to a draft government report released on Wednesday.

The move “will send a shiver down energy majors’ spines. Given large LNG investments, they may have discounted the pace for renewables to displace gas in power generation”, Bloomberg Intelligence analyst Will Hares said.

Japan jostles with China as Australia’s largest LNG export market with $21bn of LNG shipped to Japan last year while nearly $10bn of Australia’s annual thermal coal exports are sent to Tokyo.

The Asian nation plans to reduce its use of LNG to 20 per cent of the overall power mix by the end of the decade, from 37 per cent in 2019 and compared with its previous 27 per cent target. Coal will fall to 19 per cent from 32 per cent last year and against a prior 26 per cent goal.

Renewables will more than double to between 36 and 38 per cent of electricity supply, from 18 per cent in 2019 and an existing 22-24 per cent target by 2030.

Relegating LNG as part of its power mix was not expected by the market given Japan has for decades been the world’s top LNG importer and seen as a stable market for both producers in Australia and its rival, Qatar.

China overtook Japan as Australia’s biggest LNG export market in the 2021 financial year, according to consultancy EnergyQuest, although reports emerged in May that several Chinese importers have been told to avoid buying supplies of gas from Australia amid trade tensions.

Japan, China and South Korea have already made plans for net zero ambitions, seen as a threat to demand for two of Australia‘s biggest export earners. The three countries combined buy two-thirds of Australia’s coal and threequarters of LNG exports.

Still, Japan and South Korea’s goals have been described as “hugely aspirational and daunting” by consultancy Wood Mackenzie given both rely on hydrocarbons for 80 per cent of their primary energy supply. That will have to halve to a 40 per cent share by 2050 for the economies to meet their targets, a worrying sign for Australia.