Japan LNG costs poised to rise as JKM doubles on Middle East tensions, says IEEFA

Asia–Europe competition for LNG cargoes also contributes to higher import costs.

Japan’s liquefied natural gas (LNG) import costs are expected to rise as Middle East tensions and the closure of the Strait of Hormuz tighten global supply and push up Asia’s benchmark Japan-Korea Marker (JKM), exposing the limits of the country’s diversification strategy.

The Institute for Energy Economics and Financial Analysis (IEEFA) report said the JKM has doubled since the disruption began, reflecting tighter LNG availability and stronger competition between Asia and Europe for cargoes.

Japan, which generates more than 30% of its electricity from LNG, remains exposed to global price movements despite a geographically diverse sourcing portfolio.

The government said only 6% of Japan’s LNG imports pass through the Strait of Hormuz and that it holds around three weeks of domestic LNG inventory, but procurement remains tied to global pricing benchmarks, meaning supply shocks are still transmitted regardless of shipping routes.

Japan’s LNG import bill rose 65% in US dollar terms between 2021 and 2022 during the Russia-Ukraine energy crisis, even as import volumes fell 3%.

In yen terms, costs rose 98% due to currency depreciation, and import volumes in 2025 remain below 2021 levels whilst total spending remains elevated.

Higher LNG costs feed into Japan’s electricity system, with wholesale power prices on the Japan Electric Power Exchange rising from $0.074 (JPY13.43) per kilowatt-hour (kWh) in fiscal year (FY) 2021 to $0.112 (JPY20.41) in FY2022, peaking above $0.36 (JPY65) during volatility.

Retail electricity tariffs also increased, with household electricity charges rising 20% in 2022, the report added.

Modelled monthly bills for Tokyo Electric Power Company (TEPCO) rose from $36 (JPY6,546) in April 2021 to $50 (JPY9,126) in late 2022, whilst Kansai Electric Power Company saw increases from $36.6 (JPY6,499) to $41 (JPY7,497).

Utilities now face renewed pressure as LNG prices rise again, with TEPCO and Chubu Electric planning to pass through higher procurement costs from April 2026, and household electricity costs projected to increase by $95 (JPY15,000) per year.

Energy price shocks have also weighed on Japan’s macroeconomic position, with fossil fuel import bills rising from $93b (JPY17t) in 2021 to $185b (JPY33.7t) in 2022, widening the trade deficit to more than $110b (JPY20t).

Consumer inflation rose 2.5% in 2022 and remained above the Bank of Japan’s 2% target in subsequent years, staying elevated at 3.2% in 2023 and 2025 as energy and import costs fed through.

The report noted that a $10 increase in crude oil prices raises inflation by 0.3 to 0.4 percentage point. Brent crude has risen from $72 per barrel on 27 February to $103 on 17 March in the current cycle, whilst Iran warned oil prices could reach as high as $200 per barrel.

Japan’s government debt stands at 235% of GDP, whilst energy subsidies reached $74b (JPY13.4t) between 2022 and 2025.

A further $32b (JPY5t) support package was approved in February 2026, including measures to stabilise petrol prices at $0.93 (JPY170) per litre.

The report concludes that LNG supply diversification does not remove exposure to global price shocks, as import costs remain tied to global benchmarks, and argues that stronger domestic renewable energy deployment is needed to reduce exposure to volatility.

(US$1 = JPY182)