Japan seeks coal, but not Australian coal

As utilities start to fire up cheap coal power generators to get ready for the upcoming full liberalisation of Japan's power and gas market, the nation's two biggest oil refiners are also competing to get in on the action.

It's been almost four years since the accident at the Fukushima Daiichi nuclear power plant led to all of Japan's 48 reactors being idled. To make up for the shortfall created by the loss of what was once 30 per cent of the country's power output, utilities have stepped up their use of liquefied natural gas. But importing LNG has proven expensive and a global supply glut in the coal market has created an opportunity for them that is too good to pass up.

But companies are looking for cheaper suppliers than Australia.

Several utilities including Kansai Electric Power and Osaka Gas have officially announced plans to build new, big coal-powered stations in the past month. Tokyo Electric Power also has a plan to replace six gigawatt oil power stations on Tokyo Bay with new coal power stations.

At the same time, Japan's oil refiners, struggling with a slump in demand due to fuel efficient cars and factories switching to natural gas from oil, have been branching out into unorthodox new areas, such as the production of solar panels and investing in uranium mines. While JX Holdings and Idemitsu Kosan, the country's two biggest refiners, started their coal businesses in the early 1980s, falling oil demand has pushed them to make coal one of their major focuses.

"Annual demand for thermal coal is expected to rise by some 30 million metric tons by around 2020," said Fumitake Uyama, Idemitsu's coal resource and supply manager. The additional demand is roughly 30% of Japan's 2014 imports. "This is big. We are all excited," he said.

Idemitsu has stakes mainly in Australian mines. But late last year, it increased its holdings in an Indonesian coal mine to 30% from 12% in order to diversify portfolio and boost its supplies of low cost coal.

"Japanese customers are gradually changing. They used to buy only the highest grade Australian coal. Now, some want less costly sub-bituminous coal (mainly produced in Indonesia)," said Toshihiko Shagema, Idemitsu coal supply and logistics deputy manager.

JX is also keen to capture some of that growing demand. "Coal demand is rising both in Japan and Asia. We'll get at it," said Osamu Iizuka, coal business department deputy general manager. Aiming to expand its coal business to embrace more profitable coking coal, JX is now studying the feasibility of a mine on Canada's west coast. At the same time, the company is looking for customers beyond Japan's borders. "We are approaching prospective customers in India and China," Mr Iizuka added.

Edited from source by Joseph Green

Source: Business Spectator

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