Japan to Lower Imports of Coal, Seeks to Create Energy Security

Japanese power utilities are increasing their efforts to reduce thermal coal import costs by switching to lower quality grades and expanding import sources, according to company officials, as Tokyo seeks to combat inflation and improve energy security.

They said the measures include burning more low-to-mid-grade coal and looking for new suppliers in Africa and South America, as the world's third largest coal importer has sharply reduced imports from Russia, which has been sanctioned for its invasion of Ukraine.

The disruption in Russian energy exports squeezed global energy supplies and drove coal and liquefied natural gas prices to record highs last year, hitting nations hard.

Seven major regional utilities have already applied to raise electricity prices beginning in April or June, as the industry suffers from increased import costs exacerbated by the weak yen.

High-grade Newcastle thermal coal futures hit all-time highs of more than $400 per tonne last year, more than tripling Japan's import value of the fuel in 2022.

Although prices have fallen by 39% this year, utilities are concerned that the market will rise again as top importer China recovers from COVID-19 lockdowns and resumes Australian coal imports in February.

"Among various measures to improve efficiency, cutting fuel cost is the most important thing as it's so big," Hokkaido Electric Power President Yutaka Fujii said last month.

He added that possible cost-cutting measures include using more low-grade coal, diversifying supplier sources, and purchasing coal in collaboration with other companies.