Japan’s global LNG drive confronts new research, growing backlash

A recently released report by the Institute for Energy Economics and Financial Analysis (IEEFA) found that Canadian LNG project developers have been racing to build new projects along the country’s west coast in efforts to sell the fuel to Asian countries, particularly Japan. For its part, Japan has indicated that it is keen to sign off-take deals with those developers.

However, Japan’s desire to sign more LNG off-take deals seems counterintuitive since its LNG imports have fallen every year since 2014.

The country’s LNG demand could fall even more, between 25.7 and 31.6 million tonnes per annum or around a third of 2019 levels, the IEEFA said in an earlier report.

This comes as more nuclear power plants come online, and more renewable energy projects are built. Japanese nuclear energy generation increased by 54 percent and renewable energy by 7 percent through November 2023, but LNG imports declined by 8 percent over the same time period.

The IEEFA projected that Japan would likely sign more LNG supply deals so that it can resell the fuel at a markup. It can also re-sell liquefied gas without it ever having to be shipped to its shores. In order to do that, however, destination clauses in any new contracts have to be removed.

Historically, most LNG sales purchase agreements have included destination clauses that prevented the buyer from diverting cargoes to any destination other than the original contractual location. The EU, for its part, is still investigating the impact of destination clauses on prices and generally considers them to be anti-competitive since it can hinder the free flow of LNG and thus stymie a healthy market for the fuel.

A Bloomberg report said in October that Japanese buyers were still struggling to ensure that supply contracts were flexible enough, and needed the government to help negotiate better terms. Around 40 percent of Japan’s long-term contracts are expected to still have destination clauses by the end of the decade. In 2022, (the most recent year for which data is available), Japan resold almost 32 million tonnes of LNG to other countries.

Japan is also lobbying foreign governments to increase LNG development, while setting resale targets for its domestic companies, the IEEFA report added. Japanese companies have recently proposed at least 30 gas and LNG-related projects in South and Southeast Asia. These will likely come with commitments to buy LNG from Japanese project sponsors. As such, Japan’s push for Canadian LNG is more about cementing future business expansion opportunities than domestic energy security.

Growing backlash

Japan’s LNG and gas-to-power push into Southeast Asia is creating considerable backlash with NGOs, environmental groups and large swaths of the region’s populace. A report by climate change think-tank E3G said that Japan’s approach would lock Southeast Asia into “long-term gas dependence, risking their economic stability and undermining global climate efforts.” To date, Japan is most active developing LNG infrastructure in Bangladesh, the Philippines, and Vietnam.

Japanese utilities first started pushing their outward-looking LNG strategy as far back as 2017 when they began over-contracting LNG and excess cargoes in order to re-sell the fuel to other countries. In lockstep, the Japanese government soon adopted the strategy and turned it into policy in an effort to not only help its utilities remain competitive but to counter Chinese influence in the region. Japan’s largest utilities, JERA, Tokyo Gas, Osaka Gas, and Kansai Electric, wield both considerable economic and political power in the country.

Japan has claimed that liquefied gas development can help the region pivot away from its long-time over-reliance on coal. Notably, coal-fired power plants account for over 40 percent of Southeast Asia’s power generation.

Other proponents further claim that LNG is the ideal transition fuel since it emits only around half of the CO2 as does coal when used for power production. However, that’s an unbalanced comparison since coal is the world’s dirtiest burning fossil fuel. LNG emits greenhouse gases (GHG) and other pollutants throughout its entire life cycle, from extraction to transportation. LNG usage also emits methane, a GHG 85 times more potent than CO2 in the first 20 years after it’s emitted. 

A new Cornell University study found that LNG leaves a GHG footprint that’s 33 percent worse than coal when processing and shipping are taken into account. “The idea that coal is worse for the climate is mistaken – LNG has a larger GHG footprint than any other fuel,” said Robert Howarth, a Cornell environmental scientist and author of the paper.

“Over 20 years, the carbon footprint for LNG is one-third larger than coal, when analyzed using the measurement of global warming potential, which compares the atmospheric impact for different GHGs. Even on a 100-year time scale – a more-forgiving scale than 20 years – the LNG carbon footprint equals or still exceeds coal,” he added.

Numerous reports have already been published detailing the need to pivot away from not only coal usage but new LNG development, while building up more renewable energy infrastructure. However, to date, Japan has largely ignored climate critics and built a global natural gas empire.

The IEEFA report brought the argument full circle, stating that instead of building out LNG infrastructure under the guise of energy security and decarbonisation, Canadian policymakers can support renewable energy growth through diplomatic channels, like the G7.

“Ultimately, Canada should use its geopolitical influence to promote real climate solutions, not the expansion of Japanese gas interests throughout Asia,” it added.