How Japan, via AZEC, is pushing LNG across Asia
Since its formation, AZEC has been pushing LNG and other linked technologies, and it is starting to have an impact, as countries in the region are increasing their use of LNG.
At the third ministerial meeting for the Asia Zero Emission Community (AZEC), held in Kuala Lumpur, Malaysia on October 17th, LNG featured prominently on the agenda, leading to concerns among some analysts.
Founded in early 2023, AZEC has become the main avenue for Japan’s push to expand natural gas and LNG usage across Asia, as part of regional energy plans.
“LNG will ensure sufficient energy supply to meet the growing power demand, and will help reduce CO2 emission by enabling the transition from coal to gas,” said Tatsuya Terazawa, chairman of the The Institute of Energy Economics Japan (IEEJ), a Tokyo-based think-tank that provides analysis and policy support to AZEC.
“Later, in the longer run, LNG can be decarbonised using carbon capture or by co-firing with hydrogen/ammonia.”
But others, like Hanna Hakko, a Japan analyst at E3G, a non-profit think-tank, told Gas Outlook that they are concerned by AZEC’s focus on LNG.
“Supporting fossil fuel related technologies is not compatible with AZEC’s climate and energy security mission,” said Hakko. “Expanding on clean solutions like energy efficiency and storage, grid and renewable energy are much more compatible with AZEC’s mission and the partner countries’ priorities.”
In fact, since its formation, AZEC has been pushing LNG and other linked technologies, like carbon capture or LNG-based blue ammonia or hydrogen co-firing. And it is starting to have an impact, as countries in the region are increasing their use of LNG.
Thailand has expanded its LNG infrastructure in the past few years, becoming the top importer in Southeast Asia. The Philippines started importing LNG in 2023 through two Japan-supported LNG receiving terminals, and is also seen as a potential growth market, while Cambodia is also exploring building an LNG terminal to import natural gas for power generation.
If this continues, it would have major consequences for the energy transition across the region.
Role of AZEC
AZEC was launched by Japan’s then-Prime Minister Fumio Kishida as a “platform for cooperation towards carbon neutrality/net-zero emissions in the Asia region.” Its goals have been stated as achieving “net zero emissions through various pathways” and “supporting Asian countries economic growth, energy security, and decarbonisation.”
Currently, there are 11 member nations in AZEC, including Indonesia, Thailand, Australia, and Malaysia. In order to push for LNG, AZEC reports and joint statements often downplay the potential of renewables, like wind and solar, in powering Asia’s energy transition.
“AZEC is an example of how Japan exercises its energy diplomacy,” Elisa Leys, a Tokyo-based gas and public finance analyst at Solutions for Our Climate (SFOC), an organisation working on climate and energy across Asia, told Gas Outlook.
“Several [AZEC] projects focus on gas and CCS, promoting the continued use as well as further development of technologies and infrastructure that have no future in a real zero emissions future,” she added.
In order to make LNG attractive, Japanese companies, government officials, and state-linked think-tanks like IEEJ regularly push this message: renewables are unreliable, “unevenly distributed” and countries in the region have “limited renewable energy potential.” This, in turn, means that there is an “important role for natural gas and LNG to play as transition fuels in line with climate goals of the Paris Agreement.”
But numerous independent,scientific or academic studies show an entirely different picture. Most AZEC countries have ample offshore wind, solar and untapped geothermal potential and could, with proper investment, scale up renewable energy quickly, without the need for LNG as a transition fuel.
Why LNG
Japanese companies, including JERA, Osaka Gas, Mitsubishi, ENEOS, and others, are among the global leaders in LNG exploration, transportation, and infrastructure. According to a report released by SFOC, Japanese public and private financial institutions have invested an astounding $119 billion into fossil fuels across Asia, over the past decade. The biggest recipient of Japanese investment is natural gas, which has received over $56 billion in financing since 2013.
“They have built out gas infrastructure across the world from upstream, to midstream to downstream, they need to keep gas flowing to the region to make sure the investments and continued investments are worth it,” added Leys.
There’s another reason that Japan wants to push LNG across Asia – because it has too much. The country is actually seeing consumption drop, partly due to a shift towards renewables. But Japanese companies have already locked themselves into long-term LNG contracts that will leave them with far more LNG than they can use domestically. Already, Japan is re-exporting excess LNG to Europe and Southeast Asia.
“Decades of financial and technological investment into the gas industry has led to path dependency, making a shift away from it only harder,” said Leys.
AZEC has been pushing countries in the region to expand their fossil gas infrastructure and become more dependent on imported LNG from Japanese or Chinese traders. One way it is doing this is through regional energy policymaking. Japanese government entities or Japanese-funded think tanks, like the Jakarta-based Economic Research Institute for ASEAN and East Asia and IEEJ, are helping Asian countries develop energy strategies and plans.
“Japan’s gas diplomacy has had a significant influence on the region,” said Leys.
The result is real economic risks for AZEC member-countries. One analysis from Carbon Tracker estimates potential financial losses of $70 billion if natural gas expands across the region. LNG’s high price volatility, and lagging cost-competitiveness with wind and solar, make it an investment that less and less financiers outside of Japan are willing to support.
“There are major stranded asset risks with this bet on LNG, especially since an LNG glut is imminent,” said Leys. “With gas demand market trends, global shift to decarbonization and the sharp decline in the cost of renewables, it is very uncertain how much the government or private companies will be able to benefit off the gas trade.”
(Writing by Nithin Coca; editing by Sophie Davies)