News & Media

06 February, 2020

LNG Market News - Japan

(Source: Nikkei Asian Review 05/Feb/2020)

World biggest importer Japan to invest in LNG terminals across Asia

Government to expand funding to downstream infrastructure projects

TOKYO -- Japan will support the construction of liquefied natural gas terminals across Asia, aiming to take a leading presence in the expanding market before its position as world's largest buyer is overtaken by China in the near future.

Japan currently supports companies involved in LNG projects through investment and loan guarantees via a government-backed natural resource company -- Japan Oil, Gas and Metals National Corp., or Jogmec.

However, Jogmec is limited to aiding upstream operations, such as natural gas exploration and liquefaction plant construction.

New legislation would allow Jogmec to support investment in projects further downstream, such as LNG terminals in other countries so that they can import the fuel. Transporting the fuel over long distance efficiently also requires LNG to be reloaded at transshipment facilities, the development of which will also be aided under the plan.

As a relatively clean carbon-based fuel, global LNG demand is projected to double by 2040, according to the International Energy Agency. Japan is currently the biggest importer, but consumption is forecast to grow rapidly in Asian countries, with China seen as the biggest importer in 2040.

The easing of Jogmec's aid of the construction of LNG terminals is expected to help corporate Japan expand trade with other consuming countries. By helping top producers, such as the U.S., expand sales destinations before Japan's position as the leading buyer declines, Tokyo hopes to take a central role in the growing market.

The variety of LNG sources also allows users to cut dependence on Middle East oil, an area under significant political risk. The Middle East is responsible for 60% of net exports of crude oil, but just 20% for LNG.

A stronger focus on transshipment facilities will also make it easier for Japan's private sector to take part in the rapid transport of Russian LNG via the Arctic Ocean.

(Source: Japan Maritime Daily 05/Feb/2020)

Energy transportation will be the driving force for the non-liner segment of the Japanese shipping majors in March FY2020

In the fiscal year ending March 2020, the Japanese shipping majors non-liner (non-ship carrier) business is expected to drive energy transportation such as LNG (liquefied natural gas) and crude oil tankers. Improving the balance of PCTC also contributes. On the other hand, dry bulkers are expected to be affected by sluggish market conditions. All three companies do not factor in the effects of the new coronavirus. This has had some impact on port calls to China and ship management, which may have a negative impact on full-year earnings.

For the full year, segment profit (ordinary income) for non-professional vessels is expected to increase 29% year on year to ¥ 43.5 billion. VLCC(Very Large Crude Carrier) market conditions exceeded expectations, and more efficient PCTC dispatch contributed to improved earnings. We revised it up 3.5 billion yen from the previous forecast of 40 billion yen.
Energy transportation also enjoyed favorable tanker market conditions based on stable profits from LNG carriers, marine business, VLCC, and large LPG (liquefied petroleum gas) carriers.
PCTC shipments remain unchanged at 3.14 million units, an 8% decrease from the previous year, announced at the end of October 2019. Although sales decline, profit margins have improved with selective collection and more efficient shipping.
Dry bulk transport has been revised down. This was due to a review of market assumptions in light of the recent decline in market conditions. However, it uses FFA (Forward Freight Agreement) to hedge the effects of market fluctuations to a certain extent.

The segment profit for the dry bulk carrier business (excluding coal carriers) is expected to decline 45% YoY to ¥ 12.0 billion. Renewal of favorable contracts concluded during the period of rising market prices will be a factor.
Due to the recent decline in market conditions, the business forecast assumptions have been revised downwards.However, the business forecasts have been maintained at the previous forecast due to the reduction in market exposure (parts exposed to fluctuations) and the strengthening of resistance to market fluctuations. .
The energy transportation business is forecast to increase 4% year on year to ¥ 22 billion. Crude oil tankers have enjoyed some soaring market conditions since September last year. The profitability of product carriers carrying petroleum products has improved due to structural reforms such as reduction of vessels and operation of pools.
LNG carriers, offshore businesses, and coal carriers have secured stable profits. The company expects to complete eight new LNG carriers for long-term contracts this term, and to function as a stable source of earnings from next term.
The segment profit forecast for the product transportation business (excluding container ships) has been revised from ¥ 3.0 billion previously announced to ¥ 2.0 billion. PCTC, ferry and coastal vessels have both been revised downward.
PCTC shipments to North America, where the market is saturated, and to China, where sales are sluggish, are less than expected. The transport forecast has been revised from 3.85 million to 3.78 million. Ferry and coastal RORO vessels were affected by reduced flights due to typhoons.

For PCTC, which were pending, measures such as route restructuring and fare restoration were successful, and the division’s income and expenditures improved significantly. The segment profit and loss of product logistics including PCTCs (excluding container ships) is expected to return to a surplus of ¥ 8.0 billion (a ¥ 0.4 billion loss in the previous fiscal year).
PCTC transport forecasts have been revised from 3.39 million to 3.37 million. This is due to streamlining and reorganization of unprofitable routes with emphasis on ship allocation efficiency.
Dry Bulk segment profit is expected to decline 20% to ¥ 3.5 billion. Due to the fall in dry market conditions, the forecast was revised down 1.5 billion yen from the previous forecast of 5 billion yen.
Prolonged dock period is also expected to squeeze profits. Due to the delay in the installation of the SOX (sulphur oxides) scrubber (exhaust gas cleaning system), the operating rate is expected to decrease.
Energy resource segment profit is expected to increase 3.8 times to 9.5 billion yen. LNG carriers and electric power coal carriers that entered service up to the previous fiscal year recorded stable profits based on medium- to long-term contracts. Improving the income and expenditure of offshore support vessels for marine resource development will also be successful.

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