Tokyo: Resource-scarce Japan is fortifying its long-term liquefied natural gas (LNG) supplies through strategic partnerships with close allies Australia and the United States, as key contracts with providers like Russia are set to expire by the early 2030s.
Japan’s largest power generator, JERA, recently finalized an agreement to acquire a 15.1% stake in Woodside Energy’s (WDS.AX) Scarborough project in Australia. This move marks the latest in a series of initiatives aimed at securing stable energy sources, particularly in light of concerns stemming from Russia’s invasion of Ukraine, which poses a threat to gas access from its northern neighbor.
LNG plays a pivotal role in Japan’s energy landscape, constituting approximately a third of its power generation. Despite a decline in imports by 8% last year, reaching the lowest levels since 2009, Japan remains the world’s second-largest LNG importer, trailing only behind China. The country has diversified its energy mix, incorporating increased usage of renewable energy sources and the gradual restart of nuclear reactors following the Fukushima disaster in 2011.
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Since 2022, Japanese LNG purchasers have forged equity agreements in five projects across Australia and the U.S., including exploration blocks. These agreements entail securing offtake contracts spanning 10 to 20 years, amounting to more than 5 million metric tons annually, which accounts for 8% of Japan’s 2023 consumption. This figure surpasses transactions made elsewhere globally.
Despite potential political hurdles such as the introduction of new carbon emissions regulations in Australia in mid-2023 and President Joe Biden’s temporary freeze on new U.S. LNG export license approvals in January, Japan’s commitment to long-term supplies from these nations remains steadfast. Kyushu Electric Power, one of Japan’s top five utilities, is contemplating acquiring a stake in Energy Transfer’s Lake Charles LNG project in the United States, despite the project’s current status under the U.S. license freeze.
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This prospective investment would mark Kyushu Electric’s second direct equity stake in gas production, following its engagement in Australian ventures. According to Takashi Mitsuyoshi, Executive Officer at Kyushu Electric, “North America and Australia still offer supply stability compared to other projects. There are some concerns about North America due to recent LNG developments by the Biden administration, but they, along with Australia, are allies, and that holds significant weight.”
Japan, the United States, and Australia are members of the Group of Seven (G7) alliance of developed nations and collaborate closely within the Quadrilateral Security Dialogue, known as “the Quad,” further solidifying their strategic partnership in various arenas beyond energy.
