Mr Hiroshi Ozaki joined Osaka Gas in 1972 and has since held several directorial positions in the company, overseeing the Raw Materials; Gas Production and Power Generation Business; and Energy Business division. He has been the President of Osaka Gas Company since 2009. Under his leadership, Osaka Gas continues to be a leading energy supplier with its core natural gas supply business serving 7 million customers in the Kansai Region.
1. Japan is facing the prospect of replacing some 12,000 megawatts of nuclear-generating capacity and the economic strain of importing LNG for its utilities. How do you see Japan's energy mix evolving in the years to come?
The long-term energy policy for Japan in the post-Fukushima era has been under revision and the shape of the country's nuclear policy is still uncertain. Currently, the operation of all the plants has been shut down, but it is expected that some plants will be restarted after going through the regulator's stringent safety review and authorisation of the operators' preparedness against earthquakes and tsunamis. Judging from the status of the restarting process, it is very likely that Japan's nuclear electricity output in the next ten years would not be back to the pre-earthquake level. There are expectations that the shortfall of electricity resulting from this would be met by greater use of renewables, particularly solar power, as that has rapidly increased since the introduction of the feed-in tariff regime. There exists, however, problems associated with renewables, namely economics and reliability.
Essentially, economics should be one of the most important factors in designing a country's energy mix. In the case of Japan, a realistic fuel mix in the post-Fukushima era should be the one in which natural gas is used as the primary fuel to replace the shortfall in nuclear capacity, part of which should also be taken care of by coal.
Learning from our experience of the earthquake and tsunami, a risk of being over-dependent on centralized power supply has been pointed out and there is renewed awareness about the importance of distributed power supply systems such as cogeneration (CHP). The Japanese gas utility industry should make a positive contribution to an economical, environmentally-friendly, and stable energy supply through increased use of gas-based distributed generation systems as well as centralised generation systems using advanced CCGT.
2. What about the rest of Asia? How do you think the energy landscape in Asia will look like in 2030? In particular, how do you see the so-called shale revolution unfolding?
No additional words are needed to describe the robust energy demand in Asia. Asian energy supply and demand has been characterised by its high dependency on coal. In view of the region's response to environmental problems such as air pollution and carbon emission, natural gas is expected to play a greater role in meeting the rising demand for energy. Because of this, there are significant expectations on the development of shale gas in Asia, as the region is estimated to have abundant resources.
The dynamic changes dubbed as the "shale revolution" in the United Sates have been brought about by a number of structural causes including the highly mature gas exploration/production industry, the sophisticated energy infrastructure, and so on. Because of these factors, it is difficult to foresee that shale gas development would occur in other countries as they have in the US. Rather, shale gas resources should be developed in Asian countries in ways that allow these countries to meet their own needs. We would have to wait and see how they would be developed in the region.
The US shale gas revolution has had an impact on international trading of not only natural gas but also other energy commodities such as coal, making regional energy markets increasingly inter-dependent. As shale gas is developed in various parts of the world, it would make energy markets increasingly globalized and it would make the world's energy supply and demand structure more resilient. Asia, with its fragile energy supply/demand structure dependent on imports, should embrace the structural changes including geopolitics in a global energy context.
3. Japan recently succeeded in tapping into its methane hydrate reserves, which could diversify the country's energy mix. How do you see the role of unconventional energy sources fitting into Japan's energy security?
Considerable reserves of methane hydrate are said to be available in the waters around Japan. An offshore experimental production of this energy source was conducted successfully using the depressurisation method in March this year for the first time in the world. Methane hydrate, however, is in an early phase of technological development and its commercial production is expected to take some more time. Its development, however, would dramatically improve the security of energy supply for the country.
It is also meaningful for Japan to improve its energy security through diversified energy supply portfolio by developing various unconventional energy sources overseas such as shale gas, CBM, and tight oil. To take advantage of the benefits of unconventional energy sources, improving economics remains the greatest challenge in the process of technological development and commercialisation. Japan, given its dependency on overseas energy sources, should make a positive contribution to developing energy sources including these unconventional ones through every possible means such as financing, R&D, and infrastructure development.
4. How will Japan's membership in the Trans-Pacific Partnership, if successful, change the dynamics of the LNG market in Asia, which is expected to become the second-largest global natural gas?market after North America by 2015? How real is the prospect of Asia seeing the establishment of its first LNG trading hub, in light of Japan's move to list the world's first LNG futures contract in the next two years?
It is still too early to discuss implications of TPP on energy business because Japan recently decided to take part in its negotiations. On the basis of the principles of TPP, enhancing trade between countries would stimulate energy trading and it would be beneficial to the LNG business.
During the past few years, we have seen the rapidly increased liquidity of the international LNG trade due to a number of reasons including the shale gas revolution and Japan's temporary rise in LNG demand. The higher liquidity has helped diversify the LNG business and it has increased the need for players to have easy access to markets such as an LNG trading hub.
There are a number of challenges that need to be addressed in establishing effective hubs. They include infrastructural requirements such as ports and storage facilities as well as a large pipeline natural gas market in close proximity to absorb supply/demand fluctuations. If we expect an LNG hub to function as a market price formation point, it would be favourable to see the participation of PNG players. In order to facilitate participation of diversified market players in a hub, their specific needs should be fulfilled and steps should be taken to examine these elements before launching a trading hub.
5. Osaka Gas has significant power investments internationally. Within the next twenty years, energy demand in Asia and the Pacific region will almost double. What opportunities are there for Osaka Gas to expand into other parts of Asia?
On the basis of its medium- and long-term business vision 'Field of Dreams 2020,' the Osaka Gas Group has pursued opportunities to actively develop international energy businesses. The company intends to capture promising opportunities for growth globally by taking advantage of its human resources, technical expertise, and other assets.
Given its high growth potential, Asia provides us with strong outlook for increased energy demand and attractive business opportunities. Among those potential businesses in the region, Osaka Gas is interested in examining gas infrastructure business opportunities. To develop those opportunities, it is important to clarify a number of conditions, particularly market infrastructure, regulatory and administrative transparency and their predictability.
Osaka Gas is currently working on building up its gas business in Singapore and Thailand. In the former, we formed a joint venture called CITY-OG Gas Energy Services Pte. Ltd. with City Gas, a local gas supplier in Singapore, this past August. The new company started gas marketing activities for industrial customers. Through this joint venture, Osaka Gas intends to contribute to efficient energy utilisation in the country through technologies and know-how we have nurtured in Japan. We believe energy conservation in Singapore is a promising business area for us following the legislation of the energy conservation regulations.
Outside Asia, Osaka Gas has continued its efforts to acquire investment opportunities since 2004 primarily in the IPP businesses in the US, Europe, and Australia. Its total equity generating capacity now totals 1.43GW. Although the company has no experience in IPP business in Asia, we would be interested in exploring opportunities with a high priority for infrastructure-related businesses including gas pipelines and LNG supply. These are areas where we could expect synergies with our conventional energy businesses.