Shell, Tokyo Gas, Osaka Gas team up to decarbonize gas business

Shell has signed two separate memorandums of understanding (MOUs) with Tokyo Gas and Osaka Gas to collaborate on various types of decarbonization projects, and the three companies unveiled a joint initiative to explore renewables-based synthetic gas.

Tokyo Gas and Osaka Gas, which are among the main LNG importing firms of Japan, the world's second largest LNG importer, are both aiming for carbon neutrality by 2050. Shell—a top LNG producer—wants to be a net-zero emissions energy business by the midcentury point.

"Customers are at the center of our energy transition strategy, and we are delighted to be collaborating with Tokyo Gas and Osaka Gas on exploring the potential of developing a range of low-carbon energy products and solutions … to meet their decarbonization needs," Shell Energy Executive Vice-President Steve Hill said in a statement 6 June.

Shell's two MOUs are similar and cover clean hydrogen, bio-methane, and carbon capture, utilization, and storage (CCUS) opportunities in the Japanese and overseas markets, according to company statements.

The three companies have long-standing business ties and jointly owned assets on the gas value chain, including the Gorgon LNG project in Australia, which has an annual production capacity of 15.6 million metric tons (mt).

The Barrow Island, Western Australia-based project has a carbon capture and storage facility that has a capacity of 4 million mt/year but is yet to meet its potential. It is 25% owned by Shell, 1.25% by Osaka Gas, 1% by Tokyo Gas, while Chevron, ExxonMobil, and JERA hold the remaining shares.

Shell separately owns 97.5% of Train 2 of Queen Queensland Curtis LNG, which has a production capacity of 4.25 million mt/year, while Tokyo Gas owns the remaining 2.5%.

Meanwhile, the UK-based oil major started delivering carbon-neutral LNG to Tokyo Gas in June 2019 and Osaka Gas in July 2021. But the cargoes are not low-carbon products per se as their emissions are offset by carbon credits from nature-based projects.

The three companies plan to jointly study the production of low-carbon synthetic gas via methanation, converting carbon oxides and hydrogen to methane and water using renewable energy.

Kentaro Kimoto, senior managing executive officer at Tokyo Gas, said they will explore "the possibility of a demonstration project that will contribute to the establishment of a synthetic gas supply chain," without elaborating.

Japan's ambition

The companies' efforts in shifting from petroleum-based gas to low-carbon gas align with the Japanese government's decarbonization plans.

Japan, the world's fifth largest GHG emitter, has pledged a 46% cut in its GHG emissions relative to fiscal year 2013 levels by 2030 before achieving carbon neutrality by 2050.

To reach the interim goal, the Japanese government wants to reduce the share of LNG in the power generation mix from 37% in FY2019 to 20% in FY2030. This points to lower Japanese LNG imports in the future. Data from IHS Markit, part of S&P Global, shows Japan imported 75 million mt last year—it had been the world's largest LNG importer since the early 1970s before ceding the title to China in 2021.

On the other hand, Japan's demand for low-carbon energy sources is set to rise. Keiji Takemori, head of energy resources and international business at Osaka Gas, suggested the company and Shell will look into "decarbonization solutions" like synthetic gas to achieve carbon neutrality.

In a strategy paper, the Ministry of Economy, Trade and Industry said 1% of the city gas supply in Japan will be replaced by synthetic methane by 2030 and that Tokyo Gas and Osaka Gas will play major roles behind the drive.

Tokyo Gas supplies about 80 MMcm/year and Osaka Gas about 60 MMcm/year. They are the country's two largest gas distributors.

Posted 06 June 2022 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.