Roiling times ahead for Japanese Energy Markets
Last month Japan`s electricity sector opened up to full retail competition. Japan`s ten regional electric companies can now compete with each other for customers and with new entrants. In a similar move in April 2017, Japan’s gas market will also open up to full retail competition.
What does the Japanese gas market look like today and what kind of impact will the open market have on the sector? In this first article I will focus on the current environment.
Pipeline Japan (JPDO) has a fragmented national transmission pipeline network. Japan does not have any overseas pipeline connections to continental Asia. Though there is a project underway to connect a pipeline to Russia, for now the country relies on its LNG terminals for the import of natural gas.
The transmission and distribution activities are partially privatized. The three largest gas companies are Tokyo Gas, Osaka Gas and Toho Gas. These companies have operated their transmission networks under a regulated third party agreement for large volume supply since 1999.
The upstream sector is partially privatized. Domestic production is negligible however, as approximately 97% of the total demand is met by LNG imports. All three companies are vertically integrated private companies.
The downstream sector is partially privatized. Most of the LNG imports are used for electrical power generation or as feedstock for petrochemical plants, while the remaining third is used for domestic consumption.
A majority of Japan’s urban areas are not served by a natural gas distribution system. Private companies represent 97% of the market. The remaining 3% is supplied by publicly-owned companies. Main private players are:
-Tokyo gas (75%)
-Osaka gas (36%)
-Toho gas (8%)
There are 215 city gas business entities in Japan, 20% of which are run by municipalities (as of September 1, 2005). 90% of the investor-owned city gas utilities are small companies, half of which have less than 10,000 customers each, which is a significant difference from the electric power utility industry in the country which is dominated by big 10 investor-owned companies.
The major source of city gas is dominated by LNG, which represents 85% of the total city gas supplied in Japan. The remaining 15% is divided into domestic natural gas (5%) and petroleum products (10%) including LPG.
There are 28 million city gas customers and 26 million LPG (which is distributed in cylinders) retail customers in Japan. In terms of sales volume, the city gas businesses sell 30 billion m3, nearly twice as much as LPG businesses.
Thus the reader might observe that while the ten Japan electrics differ is size markedly, with Tepco at one end with 29m supply points and Okinawa at the other with 875k, this is nothing compared to the differential between the largest gas supplier, Tokyo Gas, with around 10m supply points and the average City Gas supplier with only 130k supply points.
Most gas and electric companies with retailing ambitions are eyeing the lucrative dual fuel contracts that require a capability in both electricity and gas sales, the next 2-5 years promises to be an interesting time in Japan`s consumer energy market.