Japan to Open Retail Natural Gas Market in 2017
In the past few months we have written about Japan opening their electric competition for all 86 million customers (meters). The retail electric market opened this past April and, while it has had the traditional issues every new market faces, over 1.5 million customers have already switched away from their utility.
If a competitive retail electric market bigger than the U.S.’s isn’t exciting enough, next April the natural gas retail and wholesale market will open for competition in Japan. The market structure for gas in Japan is very different than the U.S. as they lack in-country gas production and instead are the largest importers of LNG in the world.
Even with the market differences, the opportunity is again bigger than the U.S. retail competitive natural gas marketplace as Japan is allowing competition to all meters. About half of Japan, or 40 million meters, gets its gas by pipeline from a Citygas Company (same as a Local Distribution Company or LDC in the U.S.). The other half of Japan buys gas from truck distributors of LPG or LNG, which market is already competitive.
The Japan energy market regulator, METI, hasn’t published the natural gas liberalized (deregulated) market rules yet, those are due out next month. Skipping Stone meets with METI on a regular basis and has gleaned some preliminary market structure information. In Japan there are basically three gas market structures, not counting trucks: LNG Cargos, LNG Terminals and Citygas Retail. There are some 230 Citygas Companies in Japan, all of which will open their retail customers to enable choosing an alternative supplier (retail marketer).
The owners of the LNG Terminals will be opening access to their terminals to create the gas wholesale market by enabling retailers and trading companies to “rent” space in the terminals. Gas within the terminals can then be bought, sold and traded between the market players. To further facilitate the wholesale market, Japan is contemplating opening an exchange marketplace for trading. Japan’s commodities futures market operator, TOCOM, is also in the process of designing a gas futures market.
Each LNG terminal is connected to several Citygas Companies for delivery of gas. In the U.S. where the retail market is defined by each LDC citygate connection to interstate pipelines, Japan’s version of the citygate will be F.O.B. the terminal to which the Citygas Company is connected (in some cases more than one terminal). The transportation charge for each Citygas end use customer will originate at the LNG terminal such that retailers don’t need to worry about the pipeline between the terminal and the Citygas location; it’s all in one transport rate.
There are a lot of unanswered questions about how Japan’s natural gas market will work. Over the coming weeks and months Skipping Stone will be digging into the market rules to determine critical aspects such as headroom analysis, operating rules, switching and billing, allocation of capacity to end use customers, wholesale market rules and much more. We’ll keep you updated!