April 2024, Vol. 251, No. 4


Japan Looks at Developing Domestic Pipelines Sector

By EugeneGerden, International Correspondent   

(P&GJ) – The government of Japan will create conditions for the development of a domestic pipelines sector in years to come. It will take place through the stimulation of building new gas and other pipelines throughout the country.

Implementation of these plans will be part of the recently announced major state initiative, with an overall price tag of $20.3 billion (3 trillion yen) for the development of the country’s domestic hydrogen sector. 

According to a recent report in business publication Nikkei Asia, the new difference-style (CfD) subsidy program, which is expected to be approved in June, will provide domestic producers and importers of low-carbon hydrogen with subsidies and other support from the state. Part of this support could be used for their further development, as well as for the building of new pipelines, which will focus on hydrogen transportation. 

The development of hydrogen sector is important for Japan, given the country’s strategy for diversifying energy supplies and its earlier announced plans to achieve carbon neutrality in 2050. 

Supply Increases 

In the case of natural gas, Japan’s current dependence on its supplies remains high. This is reflected by the official statistics of the Japanese Agency for Natural Resources and Energy, which shows the nation’s total energy supply has increased significantly. That became more pronounced following the Fukushima nuclear accident, which resulted in the closure of all nuclear plants in the country. 

That was the point at which active development of gas pipelines in Japan began. While Japan has its own gas production, it is still extremely limited, and dependence on imports remains at 90% or more. In Japan, 63% of natural gas is used to generate electricity, 29% goes to general energy consumption and 8% is used in industrial sectors. 

Currently, domestic natural gas is produced from gas fields in Hokkaido, Nigata and a few other regions of the country. 

Due to its location and geography, almost all of Japan’s gas imports arrive as LNG at more than 35 import terminals, with Australia being the largest supplier. As a result, diversification of Japan’s energy supplies and the development of domestic gas transmission system has become a top priority of state and local authorities. 

At the moment, there is no single gas transmission system operator (TSO) in Japan, and all local gas networks have developed separately, usually built close to LNG terminals. Often, these networks are not connected to each other. 

As a rule, each gas company in the country ensures its supply in its distribution area. Such a structure allows all customers, including households, to choose suppliers, due to deregulation policies primarily dating back to the early-2000s. 

Currently, the Japanese government and regional authorities are working on some interconnection projects in its gas sector in a move to increase efficiency. However, technical implementation for these plans is facing difficulties, due to Japan’s mountainous terrain, which makes connecting such fragmented networks complicated. 

From their side, the Japanese government and regional authorities plan to continue support the construction of natural gas pipelines across Japan by relaxing the existing regulations and providing support to service providers. Part of the plan is to make the domestic gas supply chain more resilient to natural disasters and to attract new power providers. 

At the same time, there are still no plans for the construction of a broad pipeline network, because local utilities prefer to purchase natural gas via pipelines of neighboring wholesalers or utilities. This is despite the fact that the gas pipeline grid covers only 5.7% of national land. 

The two biggest companies — Japan Petroleum Exploration Co. Ltd. and INPEX Corporation, which are major producers — have independent networks of high-pressure pipelines stretching over 497 miles (800 km) and 932 miles (1,500 km), respectively. 

Unlike in the United States and European countries, Japan has never enforced unbundling regulations that prohibit managing both transportation and distribution activities. 

According to the International Energy Agency, the total Japanese gas pipeline network runs 162,281 miles (261,167 km) — about 85% of that length being low-pressure grids for local distribution; only 0.9% of the network is high pressure. 

Most of the local pipelines are primarily owned and operated by electricity utilities and city gas companies, which usually expand their networks without significant state support. Since being introduced in 2004, there are also options for third-party access to trunk pipelines and distribution networks being individually negotiated by parties proposing to supply customers. Still, the lack of interconnections between regions and prefectures of Japan significantly limits competition. 

Currently, there are several legal acts in Japan, which regulate interconnections in the sector, being revised by the Gas Business Act, which will allow the government to order business operators to consult among themselves and to arbitrate between them on pipeline development. 

In addition, the sector is regulated by the existing gas pipeline development policy, which establishes rules on how decisions on interconnections are being made, as well as how these projects would be financed. 

Serious Competition 

In recent years, the pipeline sector in Japan has been faced with serious competition from LNG, which, according to some local analysts, may negatively affect the rates of building of new gas pipelines within the country. 

In the meantime — despite the current challenges — most of leading local players believe prospects are bright for the development of Japan’s gas pipelines sector for years to come. 

Eisuke Hishinuma, general manager of the Strategy Department of Energy Industries Sector at JFE Engineering — the largest pipeline construction company in Japan — agrees with that assessment. 

“Though the growth would not arise this year, we have great expectation in coming several years,” he said. “There are two main drivers for this: one is the transition from coal power to gas power, and the other is the transportation of new gas types, such as hydrogen, ammonia and carbon dioxide.” 

Hishinuma added that the Japanese government provides serious support for implementation of these plans, despite the fact that the state’s share in the sector is minimal. 

“The Japanese government is going to fund many projects that will contribute for building the green economy,” Hishinuma said. “The pipeline operators in Japan are mainly held by private sector, however, the funding is supposed to originate in the pipeline sector.” 

While there are currently no international projects among Japanese gas pipelines, the country had serious talks with Russia in the past about building a large-scale gas pipeline for the supplies of natural gas from Russia’s Sakhalin Oblast. 

Sakhalin’s natural gas was discovered in the 1980s through a joint venture between Japan and Russia, and its recoverable reserves are 7.87 Tcf 2.4 (Tcm). This amount represents 24 years’ worth of Japan’s entire natural gas consumption. 

Under the terms of the proposed project, a 4,920-mile (1,500-km) pipeline would run from the southern tip of Sakhalin to Tokyo Bay, penetrating the land on the Pacific Coast of Hokkaido and the Tohoku region and producing 82 Bcf/a (25 Bcm/a) in natural gas. 

However, the Ukraine War sanctions between Russia and Japan led to the suspension of these plans. However, some experts believe that both Russia and Japan may consider the re-launch of the project, due to territorial disputes over the Kurile Islands, as well as the big importance of the project, primarily for Japan. 

As for the hydrogen part of state plans, these pipelines are expected to be built in many large cities across the country. Last year, for example, the Tokyo Gov. Yuriko Koike announced plans to build a hydrogen supply network in the capital, as a way to cut down on greenhouse gas emissions. 

“We have plans to build a supply system, including pipelines, to receive green hydrogen generated around the world,” she said. 

The project involves constructing pipelines that connect Kawasaki Port, in neighboring Kanagawa Prefecture, to the capital’s waterfront area, to supply Tokyo residents with hydrogen transported to the port from overseas. 

Tokyo officials are now weighing research costs for the plan in its fiscal budget. 

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