Nippon Steel's planned 2 million mt/year electric arc furnace (EAF) at Yawata could face higher production costs and fuel supply risks from its proposed LNG-based electricity supply, according to an October report by think tank Transition Asia.
LNG volatility could squeeze steel margins
Transition Asia estimates that electricity costs could reach approximately JPY 15,800/mt of steel at the March 2026 spot LNG price peak, compared with around JPY 6,400/mt under normal conditions, assuming all fuel is purchased at the respective prices.
Nippon Steel's share of storage at the shared LNG terminal would cover approximately 11 days of full power plant operation, while the think tank's simulations suggest a severe gas-price year could add around JPY 16 billion in costs, putting pressure on margins.
Environment ministry raises fossil fuel lock-in concerns
In its June 2025 opinion on the LNG power project's environmental consideration document, Japan's Ministry of the Environment called for alignment with national emissions reduction targets and the early introduction of decarbonization technologies consistent with the UN's climate goal, which foresees the limiting of global average surface temperature increase below 2°C above pre-industrial levels, while avoiding fossil fuel lock-in.
The ministry also urged consideration of all options, including operating restrictions or closure, if an emissions reduction pathway consistent with the climate goal cannot be established for 2035, 2040 and 2050.
Grid power offers an alternative
Transition Asia recommends comparing captive LNG generation with grid electricity supplemented by renewable power contracts, forecasting that Kyushu's grid could become less carbon-intensive than the proposed plant by 2030.
Nippon Steel started construction of the Yawata EAF conversion project in April 2026 as part of its strategy to produce high-grade steel through the electric furnace route.
