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Unlocking the Dynamics of Japan’s LNG Strategy Shift Unlocking the Dynamics of Japan’s LNG Strategy Shift

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By: Katya Golubkova and Yuka Obayashi

The Strategic Shift

TOKYO, March 11 (Reuters) – As Japan maneuvers through a complex web of geopolitical challenges, the Land of the Rising Sun is fortifying its energy security by establishing robust, long-term relationships with key allies in the LNG arena. In a bid to mitigate the looming expiration of pivotal contracts, including those from Russia, by the early 2030s, Japan is turning its gaze towards steadfast companions like Australia and the United States.

Japan’s LNG Protagonist

Embodying this shift is Japan’s foremost power generator, JERA. Seizing the opportunity, JERA recently clinched a 15.1% stake in Woodside Energy’s transformative Scarborough project in Australia. This move forms part of a larger tapestry of agreements, a proactive response to the potential disruptions brought on by Russia’s incursion into Ukraine, underlining the urgent need for sustainable and reliable LNG sources.

The Global LNG Landscape

LNG, constituting a significant proportion of Japan’s power generation portfolio, marks the nation as the world’s second-largest LNG importer following China. Since 2022, Japanese LNG buyers have ventured into five strategic equity ventures in Australia and the U.S., securing 10- to 20-year offtake deals for over 5 million metric tons annually. This figure, amounting to 8% of Japan’s 2023 consumption, eclipses transactions witnessed elsewhere across the globe.

The Ally Factor

Despite recent factors like Australia’s updated carbon emission regulations and President Biden’s halt on new U.S. LNG export permit approvals, Japan’s zeal for long-term supplies from these countries remains unscathed. Kyushu Electric Executive Officer Takashi Mitsuyoshi highlights the inherent supply stability in North America and Australia, accentuating the significance of these alliances in ensuring uninterrupted energy flows.

Global Partnerships and Offsetting Risks

Japan, the United States, and Australia, key players in the G7 alliance of developed nations, and partners in the Quadrilateral Security Dialogue (the Quad), demonstrate a united front in bolstering energy security. With long-term contracts with Indonesia, Russia, and Australia nearing expiration, Japan navigates the uncertainties ahead by diversifying its portfolio. Although Qatar and Indonesia present some challenges, ramped-up production in Qatar and burgeoning ties with Oman and Malaysia offer promising alternatives for Japan’s LNG roadmap.

Replacing Russian Dependence

Russia’s influence on Japan’s LNG imports has waned in recent years, with significant declines in flows from Indonesia, Malaysia, and Qatar. The burgeoning influence of the U.S. and Papua New Guinea as major suppliers underscores the evolving dynamics. Yoko Nobuoka, a senior analyst at LSEG, emphasizes the heightened importance of collaboration with allies post-Russia’s Ukraine invasion, signaling a paradigm shift in Japan’s energy security strategy.

The Imperative Shift

As Washington levies sanctions on Russia’s Arctic LNG 2 project, Mitsui & Co, in collaboration with JOGMEC, faces the consequences, epitomizing the vulnerabilities in Tokyo’s reliance on Russian gas. David Boling from the Eurasia Group underscores the imperative for G7 members to recalibrate energy reliance, emphasizing the need for enhanced LNG supplies from trusted allies.

($1 = 147.9300 yen)