Japan: a year under the sign of the Panama Canal

Japan's energy market has its own unique characteristics. In which sectors of the economy and how big a role does LPG play in Japan? 

The most significant sectors for Japan's LPG market are the residential and service sectors, which account for 49% of Japan's total LPG demand. LPG is used by as many as 48% of households. The rest are largely fueled by natural gas, although of course there are exceptions to the rule: homes using electricity or fuel oil. The area of the gas network is limited to concentrated urban areas, due to the topography of the Japanese Islands, which are as much as 70% covered by mountainous terrain - very challenging from the perspective of building distribution infrastructure. For many Japanese homes, especially in less urban areas, LPG is one of the few readily available energy sources for heating purposes.

Japan is supplied with liquefied petroleum gas exported mainly from the Gulf of Mexico. How does the Panama Canal disruption we experienced in 2023 affect the Japanese market?

Although Japan's oil imports are based as much as 87% on countries in the Middle East region, the main exporter of LPG to Japan is the United States, (more than 60% of imports), the largest producer of LPG in the world. It is also worth noting that we do not import any fossil fuels from Russia.

Some logistical problems simply cannot be solved. Each transportation route has its pros and cons. Central America experienced droughts in 2023, which lowered the water level in the Panama Canal and drastically reduced its capacity for shipping. Far fewer ships are passing through the Canal, with cargo capacity reduced by up to 40%. This state of affairs is likely to continue in 2024 due to the onset of the cyclical El Niño phenomenon.

Would the logical solution to this problem be to bypass Panama? It still costs more to circumnavigate all of South America than a two-week stopover at the roadstead of the Panama Canal. The Suez Canal is also not a viable alternative. In addition to lengthening the route, transports would also be threatened by pirates[the interview was conducted before traffic was restricted through the Suez Canal due to rocket fire by Yemen's Huthi faction - POGP]. One of our chartered ships was attacked by pirates while transiting the Red Sea. Fees for crossing the Suez Canal are also not low.

How do you think the Japanese LPG market will develop in the future?  

Through population decline, demand for housing and services is falling. The industrial sector is facing stagnation. Consumption of natural gas will increase, because thanks to new sources of LNG imports (Qatar and the US), supply is growing, making the fuel more competitive. The autogas market does not have significant growth potential, due to the growing popularity of hybrids(LPG/EV), which consume much less fuel per unit. In the transportation segment, LPG competes with gasoline, and demand depends on the price ratio between gasoline and LPG. We estimate that demand for LPG in Japan will remain stable above 12 million tons per year, with a slight downward trend.

We know that historically in Japan, LPG was often used during natural disasters. Why is this the case?‍

In the event of natural disasters, it is possible to quickly restore supply and resume operation of facilities that use liquefied petroleum gas. The situation is different with electricity and mains gas, which can be difficult to access after the relatively frequent natural disasters in Japan (earthquakes or tsunamis) - until the line infrastructure is repaired.　

In the event of a natural disaster, the Japanese government has passed a special law on stockpiling oil and LPG. In the event of a sudden break in supply chains, Japan can function for 90 days thanks to its reserves. In the event of an emergency, an initiative known as regional cooperation - under which distributors supply LPG to areas affected by a natural disaster - comes into effect. To minimize the impact of the crisis on the lives of citizens, key transportation routes are being secured, with tanker trucks transporting LPG on an expedited basis. We strive to adapt to emergency situations, and our added value is our close relationship with local governments in sparsely urbanized areas. We use school gymnasiums as local evacuation centers, where we install independent heat sources, including heat pumps and air conditioning systems. I also can't help but mention the mutual support initiative between major suppliers, whereby all JLPGA members (importers and original dealers) cooperate to supply each other with LPG in the event of crises - this type of cooperation is very characteristic of the Japanese market.

In 2013, the rulers began subsidizing mobile generators on vehicle chassis through the JLPGA. Seven such generators are now in operation and can be delivered instantly to affected areas. The costs that our members incur in supporting disaster victims are partially or fully covered by the Japanese government.