IEEJ：August 2021 © IEEJ2021

Special Bulletin
A Japanese Perspective on the International Energy Landscape (542)

July 26, 2021

China Replaced Japan as World’s Largest LNG Importer in 1st Half of 2021
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
China replaced Japan as the world’s largest LNG importer in the first half of 2021,
boosting its January-June imports by 26.5% from the same period of the previous year to 39.78
million tons against 38.89 million tons for Japan, up 6.8%, according to customs clearance trade
statistics for the period. In recent months, China outdid Japan in importing LNG on a monthly basis.
However, it was the first time that China became the world’s largest LNG importer on a half-yearbasis. Given that China is likely to retain robust growth in LNG imports in the immediate future, it
can be well expected to become the world’s largest LNG importer for the whole of 2021.
When China’s LNG imports accelerated growth in 2017, it was expected to replace Japanas the world’s largest LNG importer by the middle of the 2020s. Recently, it was expected to do so in
2022. By overcoming the impact of the COVID-19 pandemic in 2020, however, China became theonly major country to achieve economic growth and energy consumption expansion in the year.
China’s natural gas and LNG demand then grew steadily, allowing China to become the world’s
largest LNG importer one year ahead of the previous expectations. Japan’s LNG imports in the firsthalf of 2021 scored a year-on-year increase of about 2.5 million tons or 6.8% due partly to severe
cold waves in the beginning of the year. However, China posted an even more remarkable rise ofabout 8.3 million tons or 26.5%, winning the position as the world’s largest LNG importer.
Japan has played key roles as LNG importer/consumer in the history of global LNG
market development. Since its first LNG import that came from Alaska in 1969, Japan has continued
to expand LNG imports. After the two oil crises in the 1970s, LNG imports were expected tocontribute to Japan’s energy security through the diversification of energy sources and the reductionof dependence on the Middle East. Initially, LNG imports were expected to help ease air pollution.
Since the 1990s, LNG was expected to serve as a low-carbon clean energy source to help decelerate
global warming or climate change. In this way, Japan’s LNG imports have continued great growth,allowing Japan to remain the world’s largest LNG importer over a long term. In 2019, it celebrated
the 50th anniversary of LNG imports. In only two years, however, Japan is ceding its position as thelargest LNG importer in the world to China.
As the largest LNG importer in the world, Japan has exerted great influence on thedevelopment of the global LNG market and the formation of LNG business in various ways. AsLNG market players, Japanese power and gas utilities have imported LNG for power generation andcity gas services, Japanese oil development and trading companies have engaged in natural gasproduction, liquefaction and sales to power and gas utilities, and Japanese financial institutions suchas the Japan Oil, Gas and Metals National Corporation and the Japan Bank for International
Corporation have provided financial support for LNG business. The Japanese government has madeand implemented LNG policies and strategies and engaged with LNG development and procurementfrom policy perspectives. Due to Japan’s position as the largest LNG importer in the world, thegovernment policy of Japan has continued to have certain impact on global LNG market andbusiness development.
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IEEJ：August 2021 © IEEJ2021

On the other hand, the world’s major LNG market players such as state-run gas companies
in gas-producing countries, international oil companies and LNG traders have considered Japan, as
the world’s largest LNG market, and Japanese players in implementing their respective businessstrategies. They have cooperated with major Japanese players in launching LNG projects where huge
initial investment is required for natural gas development, liquefaction and LNG transportation andin arranging financing, sharing business risks and recovering investment, which has contributed thecontinued expansion of the LNG market. As a result, traditional LNG business characteristics
including take-or-pay and destination clauses for long-term contracts and the indexation of LNG
prices to the so-called Japan crude cocktail (JCC) import price have become standards not only in
the Japanese LNG market but also in the Asian LNG market that accounts for most of the globalmarket.
Through the development and structural transformation of the LNG market, however,
LNG contract terms have been shortened, with short to medium-term contracts increasing and spottransactions expanding. The reconsideration of the destination clause and the implementation of new
LNG pricing initiatives have made progress. Increasing U.S. LNG linked to U.S. gas hub prices andthe growing influence of spot LNG prices are exerting various impacts on JCC-indexed LNG pricesfor long-term contracts. In view of European and U.S. gas hubs for pricing natural gas, Japan, Chinaand other Asian countries have implemented their respective initiatives to develop gas hubs. Thesechanges have accelerated in the past decade.
Japan initiated the LNG Producer-Consumer Conference as a forum for all thestakeholders including Japan as the world’s largest LNG importer and other major countries andLNG market players to constructively discuss the stabilization and development of the LNG market
after Japanese LNG imports rapidly expanded in the wake of the Great East Japan Earthquake andthe Fukushima nuclear power plant accident. This represented an initiative that Japan implemented
as LNG consumption and import leader in consideration of the global LNG market.
Under such status, the year 2021 may become a turning point for the global LNG market.
This is because China is likely to become the world’s largest LNG importer and further expand its
LNG imports in a manner to increase its influence on the LNG market. Japan’s government andindustry will remain in a position to respond to structural changes in the LNG market and furtherenhance their response. As a new giant in the LNG market, China for its part will enhance anddevelop its own strategy for responding to structural LNG market changes.
While seeking to reach carbon neutrality by 2060, China that depends on coal for some
60% of its primary energy supply will use natural gas and LNG to reduce its heavy dependence oncoal. Natural gas and LNG use will also be effective for responding to air pollution to which China
may give greater priority as an immediate and serious problems. Given these points, China can beexpected to expand natural gas and LNG demand over the long term. LNG players in the world will
have to be conscious of this point. As explained above, LNG business is now changing amid
structural LNG market changes. Attracting attention are China’s LNG strategy, as well as approaches
by its three state-run oil companies and new gas and LNG market participants that have emerged
through domestic market reforms. As the LNG market’s gravity center shifts to China, its actions
will inevitably exert great influence on future LNG market changes.
As Japan considers revising its Strategic Energy Plan, its LNG policy may be reconsidered.
Given China’s even greater presence in the LNG market, Japan will be required to formulate the next
strategic LNG policy.
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Contact: report@tky.ieej.or.jp