The International Energy Agency (IEA) is introducing mechanisms to stabilize global LNG prices, enhance transparency, and facilitate trade. Meanwhile, Japan is working to reduce its reliance on LNG imports and lower their share in the national energy mix. Increased LNG supply and reduced consumption in Japan could lead to a potential surplus, prompting Japanese firms to invest in Asian markets.
Global liquefied natural gas (LNG) markets are in a prolonged state of flux, significantly impacted by the ongoing Russian war in Ukraine. This instability has caused significant price volatility, and despite recent price drops, LNG prices remain extremely high, at double the average price over the last five years, putting a major strain on net importers.
This week, the International Energy Agency (IEA) announced new mechanisms to stabilize prices, promote greater transparency, and facilitate easier trade between countries with excess LNG and those in need. According to Nikkei Asia, “The IEA will set up a body as early as this year to share and analyze information on purchasing and anticipated demand of natural gas across different countries and to issue recommendations to the agency’s 31 member countries.”
The volatility of the global LNG market has particularly impacted Japan, which relies heavily on imports for natural gas, representing nearly a third of the national energy mix. To reduce this reliance and mitigate potential shocks, Japan is stockpiling LNG and lowering its share of the overall energy mix. The Japanese government has encouraged the private sector to maintain a 100 million tonne stockpile of LNG at all times. By 2030, natural gas is expected to account for 20% of Japan’s energy mix, down from the current 30%.
Due to this combination of increased LNG supply and reduced consumption, Japan could face a surplus of natural gas reserves, an ironic situation for a nation that produces virtually none. This potential overcorrection and over-purchase of LNG supplies have led Japanese firms to invest in markets across Asia to find potential buyers.
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