Though imported cost of coal and LNG has declined, power prices in Japan keep rising. According to data from Japan's 10 major utilities, the average retail electricity price rose for four consecutive fiscal years (2011–14). LNG prices fell by 37% and coal prices fell by 19% in fiscal 2015 but Japan's retail electricity price eased of by merely 2%.
Oversupplied global LNG markets saw gas prices in Asia plummet from nearly $20/mmBtu in 2014 to less than $6/mmBtu. Yet, for coal-to-gas switching in Asia, analysts say that LNG would have to fall by another third from its recent lows. Japanese utilities, moreover, had to deal with stagnant or declining electricity demand.
Though attractive LNG prices have made Japan’s new mega-buyer Jera consider stepping up gas imports under revised contract terms, the long-term potential for LNG demand growth in Japan is limited. According to EIA analysis, Japan, South Korea, and China, reduced demand for natural gas in the power sector, driven by slower economic growth and lower-priced competing fuels – notably coal.
Nuclear restarts limit potential for gas power
Electricity consumption in Japan has fallen for five consecutive years, and nuclear generation is gradually returning to service from a complete shutdown following the Fukushima crisis – a trend likely to reduce gas use for electricity generation. Two reactors at the Takahama nuclear plant had been restarted by early 2016 – yet on March 9, 2016, a court injunction mandated a shutdown. Another reactor, Ikata Unit 3, was restarted in early August.
More competition was meant to revive Japan’s electricity sector. Hence, the government has started to implement reforms that are aimed at deregulating the electricity sector in three phases by 2020.
The first phase established an ISO to dispatch electricity across the national grid in 2015. On April 1, 2016, regional monopoly control of existing utilities was removed, allowing competitors to enter the markets, which now gives consumers the choice of supplier. The removal of pricing regulations and unbundling of the utilities' transmission, distribution, and retail businesses are the final steps in deregulating Japan's electricity market by 2020.