Japan returns to long-term LNG deals on AI boom, national energy plan

Zawya

20-06-2025

TOKYO/SINGAPORE - Japan is back in the spotlight for liquefied natural gas producers as the boom in artificial intelligence, rising costs for cleaner energy and a new national energy plan drive appetite for long-term LNG deals.
While imports by China, the world's biggest LNG importer, are expected to fall this year, buyers in number two Japan are securing long-term supply deals again, including a potential landmark deal with Qatar.
Japan's LNG imports had fallen for a decade as nuclear power plants, idled after the Fukushima disaster, restarted and as renewable energy sources increased.
Data centres are expected to use enormous amounts of power to sustain the AI boom, while Japan's 7th Strategic Energy Plan in February identified gas as a realistic transition fuel for the nation's goal of zero net carbon emissions by 2050 and "an important energy source even after carbon neutrality".
"We had expected that electricity demand in Japan would decline, but the growth of data centres is bending that curve," Yukio Kani, global CEO of JERA, the country's top power generator and LNG buyer, told Reuters. "If we want quick solutions for data centres, Japan needs LNG. That is one external change."
Rising costs have also dimmed prospects for alternative fuels like hydrogen and ammonia, Kani said.
"Until two or three years ago, we expected faster development of ammonia, but now we have to pause," he said. "So we've been shifting back to LNG over the past year or so."
'STILL IN THE MIX'
In Japan's energy plan, the Ministry of Economy, Trade and Industry forecast annual LNG demand would fall to between 53 million and 61 million tons in 2040 if it met its emissions reductions target, from 66 million tons last year. But in a risk scenario where decarbonisation technologies lag, METI forecast demand could instead rise to 74 million tons.
The plan calls for public-private cooperation to secure long-term contracts for the super-chilled fuel, given price volatility and supply disruption risks. Under Japan's previous decarbonisation-focussed energy plan, gas importers had hesitated to sign long-term contracts.
The new plan makes it easier for buyers to commit to long-term contracts, said Takashi Uchida, chairman of the Japan Gas Association and top city gas provider Tokyo Gas.
"It's very clear that LNG has a role to play as a transition fuel, and it's now firmly still in the mix for this investment cycle," said Lachlan Clancy, energy partner at law firm Herbert Smith Freehills Kramer.
Japan has also been auctioning new gas-fired power capacity mainly to replace aging coal power plants, awarding 7 gigawatts (GW) over the past two years, according to the Organization for Cross-regional Coordination of Transmission Operators, Japan.
In March the organisation projected LNG-fired capacity would rise to 85.75 GW by 2034 from 79.98 GW in 2024.
Japan's energy plan projects power generation will increase by between 12% and 22% from 2023 levels to between 1,100 and 1,200 terawatt-hours in 2040. Consumption by Japan's data centres will soar 80%, or about 15 TWh, by 2030, the International Energy Agency forecasts.
To feed this growth, Morgan Stanley sees Japan's LNG imports rising to 78 million tons in 2030 as gas-fired power generation rises amid high costs for generating solar and wind power.
'UNCERTAINTY AHEAD'
Among the spate of deals since METI released the energy plan, Osaka Gas signed a 15-year pact with Abu Dhabi National Oil Company, Kyushu Electric Power said it would sign a deal with Energy Transfer, its first long-term deal with a U.S. supplier, and JERA inked four 20-year deals with U.S. suppliers NextDecade, Sempra Infrastructure, Cheniere Marketing and Commonwealth LNG.
By comparison, from late 2022 to early this year, Japanese buyers had announced only three deals longer than 10 years.
More deals are likely soon, Rystad Energy analyst Masanori Odaka predicts, as some utilities seek to replace expiring volumes for supply security and meet seasonal demand.
JERA and Mitsui & Co are in talks for long-term supply from QatarEnergy's North Field expansion project, Reuters reported last month.
Uncertainty persists, however, over Japan's demand for LNG, tied to questions over its ability to meet its carbon neutrality targets and its pace of nuclear plant restarts.
To address this, importers are enhancing trading operations and pursuing flexible-term contracts.
"With the government presenting multiple future scenarios, it is no longer possible to provide a definitive outlook for energy supply and demand - highlighting the uncertainty ahead," said Tokyo Gas' Uchida.
(Reporting by Yuka Obayashi in Tokyo and Emily Chow in Singapore; Additional reporting by Katya Golubkova in Tokyo and Marwa Rashad in London; Editing by Tony Munroe and William Mallard)