Japan's biggest power generator JERA last month agreed to
buy a 15.1% stake in Woodside Energy's Scarborough project in Australia. It was
the latest in a string of deals as the fallout from Russia's invasion of
Ukraine threatens to disrupt access to gas from its northern neighbour, making
it more imperative to find reliable long-term supply sources.
LNG accounts for about a third of Japan’s power generation
and it is the world’s second-largest importer behind China.
It remains a key part of Japan’s energy mix even though
imports fell by 8% last year to the lowest since 2009 as it has increased the
use of renewable energy and restarted some nuclear reactors following a
complete shutdown after the Fukushima disaster in 2011.
Since 2022, Japanese LNG buyers have struck equity deals in
five projects in Australia and the U.S. including an exploration block. They
have secured 10- to 20-year offtake contracts from those countries for more
than 5 million metric tons annually, or 8% of Japan’s 2023 consumption,
according to a Reuters calculation, eclipsing transactions elsewhere in the
world.
Political issues including new carbon emissions rules in the
Australia introduced in mid-2023 and President Joe Biden’s freeze in January on
new U.S. LNG export licence approvals have not dented Japan’s appetite for
long-term supplies from those countries.
Kyushu Electric Power, among the top five Japanese
utilities, has said it is considering buying a stake in Energy Transfer's Lake
Charles LNG project in the United States, even though it is now subject to the
U.S. licence freeze.
That would be its second direct equity stake in gas
production after Australia.
"North America and Australia still have supply
stability compared to other projects," Kyushu Electric Executive Officer
Takashi Mitsuyoshi said.
"There are some concerns about North America due to the
recent (LNG) move by Biden, but they, along with Australia, are allies and that
means a lot."
Japan and the United States are members of the Group of
Seven (G7) alliance of developed nations and are partners with Australia in
another regional security body, the Quadrilateral Security Dialogue, also known
as "the Quad".
Kyushu Electric has long-term supply contracts with
Australia, Indonesia and Russia, some of which are due to expire between 2027
and 2032.
Mitsuyoshi said Indonesia may have limited export capacity
in the future due to strong domestic demand thanks to a growing economy.
Qatar, another Japan supplier, is ramping up production but
some buyers chafe at its contracts that limit flexibility to trade cargoes,
with Japan's industry minister last year calling for the elimination of the
destination clause.
Since 2022, Japanese LNG buyers have increased their
involvement with Oman, but on a smaller scale compared to Australia and the
U.S., while Inpex acquired new exploration licences in Malaysia.
REPLACING RUSSIA
LNG flows to Japan have changed over the last decade,
including large declines from Indonesia, Malaysia, Qatar and Russia as well as
the U.S. and Papua New Guinea becoming major new suppliers, according to Japan
customs data.
Throughout that period, Australia has been its top supplier,
though other new sources are emerging.
Canada, a G7 member, is preparing to start its first major
export facility, from which Mitsubishi Corp, a shareholder, will receive over 2
million tons of LNG annually.
Yoko Nobuoka, senior analyst for Japan power research at
LSEG, said the importance of cooperation with allies for Japan's energy
security, including LNG, had increased on the back of the energy crisis
triggered by Russia's invasion of Ukraine.
Russia was Japan's third-biggest LNG supplier last year,
after Australia and Malaysia, but imports fell 10.7% from 2022.
Much of Japan's Russian LNG comes from the Sakhalin-2
project, but many of its long-term contracts are set to lapse around 2030,
giving added incentive to lock in deals elsewhere.
The vast new Arctic LNG 2 project, in which Mitsui & Co
and state-owned Japan Organization for Metals and Energy Security (JOGMEC)
together own 10%, underscores the perils of Tokyo's reliance on Russian gas.
Washington in November imposed sanctions on the project,
prompting its operator, Novatek, to declare force majeure and leading Mitsui to
record an additional provision of 13.6 billion yen ($91.94 million).
"But G7 members can't cut that reliance (on Russian
LNG) overnight, so that's why they need boosted LNG supplies from allies,"
said David Boling, a director at consulting firm Eurasia Group who was deputy
assistant U.S. trade representative for Japan from 2015 to 2022. – Reuters