Japan: a year under the sign of the Panama Canal

The Japanese energy market has its own unique specificity. In which sectors of the economy and how important is LPG in Japan? 

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

Japan is supplied with liquefied gas mainly exported from the Gulf of Mexico. How do the disruptions in the Panama Canal that we faced in 2023 affect the Japanese market?

Although Japan's oil imports are 87% based on countries in the Middle East region, the main exporter of LPG gas to Japan is the United States, (more than 60% of imports), the largest producer of liquefied gas 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 of the transport routes has its pros and cons. In Central America, droughts occurred in 2023, which lowered the water level in the Panama Canal and drastically reduced its capacity for shipping. Far fewer ships pass through the Channel, with a cargo capacity reduced by up to 40%. It is likely that this state of affairs will continue in 2024 in connection with the appearance of the cyclical El Niño phenomenon.

Would it be a logical solution to this problem to bypass Panama? It still costs more to circumnavigate South America than a two-week stopover on 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 prior to the restriction of traffic through the Suez Canal in connection with the Yemeni Huthi faction's rocket fire - POGP]. One of our chartered ships was attacked by pirates while cruising the Red Sea. The fees for crossing the Suez Canal are also not low.

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

As the population shrinks, the demand for housing and services decreases. The industrial sector is facing stagnation. The consumption of natural gas will increase, because thanks to new sources of LNG imports (Qatar and the USA), the supply increases, which increases the competitiveness of this fuel. The autogas market does not have significant growth potential, which is due to the growing popularity of hybrids (LPG/EV), which consume significantly less fuel per unit. In the transport segment, LPG competes with gasoline, and demand depends on the price ratio between gasoline and LPG. We estimate that the demand for LPG in Japan will remain stable above 12 million tonnes per year, with a slight downward trend.

We know that historically in Japan, LPG gas was used frequently during natural disasters. Why is this happening?‍

In the event of natural disasters, it is possible to quickly restore supplies and resume operation of equipment that uses liquefied gas. The situation is different with electricity and grid gas, which can be difficult to access after natural disasters (earthquakes or tsunamis) that are relatively common in Japan - until the line infrastructure is repaired.　

In the event of a natural disaster, the Japanese government passed a special law on the accumulation of oil and LPG reserves. In the event of a sudden break in supply chains, Japan can function for 90 days thanks to its reserves. In the event of a crisis, the so-called regional cooperation initiative comes into force - under which distributors supply LPG gas to areas affected by natural disasters. In order to minimise the impact of the crisis on the lives of citizens, key transport routes operated by LPG tankers are being secured in accelerated mode. We try to adapt to crisis situations, and our added value is close relations with local governments in poorly urbanized areas. As local evacuation centers, we use school gyms, where we install independent heat sources, including heat pumps and air conditioning systems. Nor can I fail to mention the initiative of mutual support between the main suppliers, under which all members of the JLPGA (importers and original sellers) work together in case of crises for the mutual supply of LPG - this type of cooperation is a very characteristic feature of the Japanese market.

In 2013, the government began subsidizing mobile generators on car chassis through the JLPGA. There are currently seven such generators in operation, which can be delivered to crisis-affected areas in a flash. The costs that our members incur in supporting disaster victims are partially or completely covered by the Japanese government.