Japanese firms are increasingly looking at synthetic methane as a way of decarbonising Japan's city gas sector, but a lack of clarity over CO2 emission counting rules could be a discouraging factor.
Main Japanese city gas producers such as Tokyo Gas, Osaka Gas and Toho Gas have been accelerating efforts to produce e-methane, especially overseas where renewable energy is cheaper, to help achieve Japan's 2050 net zero goal.
But even if these companies produce carbon-free synthetic methane, burning it later — for heat or power production, for instance — still produces CO2. This has led to Japanese city gas suppliers calling for CO2 emission counting rules to be discussed and established internationally soon, to prevent double counting of CO2 emissions from e-methane and e-fuels in the carbon intensity calculation for greenhouse gas emissions.
E-methane is a low- or carbon-free alternative to natural gas and made from green hydrogen and CO2. It is a cleaner city gas feedstock compared with LNG.
In theory, there should not be any CO2 emitted from e-methane production as CO2 is used in the process. But producers/sellers and consumers of e-methane are not always the same.
Global discussions about the counting rules of CO2 emissions in e-methane production and consumption are key to developing the market, Osaka Gas said. This is especially as Japan plans to start emissions trading in the 2026-27 fiscal year ending March and impose carbon taxes from 2028-29.
Osaka Gas has taken action to respond to this challenge. It announced in September that it would exchange e-methane knowledge with Belgian start-up Tree Energy Solutions (TES), which has a project planned in Texas with TotalEnergies to produce e-methane.
Tokyo Gas and Toho Gas struck similar deals with TES in November and December respectively.
The deal with TES will help raise awareness of e-methane globally and the need to design an international CO2 emission counting system for fuels that contribute to carbon neutrality including e-methane, Tokyo Gas said.
The three city gas suppliers are working with trading house Mitsubishi to develop an e-methane production facility in Cameron in the US state of Louisiana. The four companies aim to export 130,000 t/yr of synthetic methane to Japan using the US' existing 15mn t/yr Cameron LNG facility by 2030. Using existing facilities can help establish new supply chains quickly, Mitsubishi said.
Japan's trade and industry ministry (Meti) wants e-methane to replace 1pc of city gas volumes by 2030 and 90pc by 2050. The gas sector is on board with this plan as gas companies can use existing LNG import infrastructure to buy e-methane.
CCS ambition, cost issues
Japan's e-methane strategy also ties in with its ambition to become a carbon capture and storage (CCS) hub. Meti has said that Japan needs to make the most of CCS and carbon capture, utilisation and storage technologies to offset CO2 emissions from industry sectors. Some or most of the captured CO2 can go to Japan's overseas e-methane production projects, especially as it looks like Japan will have to export CO2 to make up for a lack of domestic CO2 storage.
The government previously estimated that Japan would be able to store up to 70pc of its forecast 240mn t/yr of CO2 emissions in 2050, meaning exports will be inevitable.
While it seems like CO2 feedstock availability may not be a big problem in the long run, for Japanese companies to feel encouraged to make more e-methane — and smooth Japan's path to net zero — issues like CO2 counting rules need to be ironed out. Japan is also aiming to have 3mn t/yr of hydrogen supply in 2030, 12mn t/yr in 2040 and 20mn t/yr in 2050.
But hydrogen costs pose another challenge to developing e-methane value chains, Osaka Gas said. This contributes to current high production costs for e-methane, making it uncompetitive with LNG. Hydrogen costs account for around 70pc of the cost of producing e-methane.
Japan has set a goal to cut the cost of hydrogen to ¥30/Nm³ by 2030 and to less than ¥20/Nm³ by 2050 from ¥100/Nm³ now. A hydrogen price of ¥20/Nm³ will help realise an e-methane production cost of ¥50/Nm³, a level that can compete with LNG, the Japan Gas Association said. Production costs of e-methane are currently at ¥250/Nm³.
