Prime Minister Kishida Fumio’s administration in Japan implemented a “Green Transformation” (GX) strategy last year to advance the clean energy transition. Despite this, Japan used its G-7 presidency in 2023 to push for increased funding for liquid natural gas (LNG) and upstream gas projects, highlighting the country’s reliance on fossil fuel technology alongside its commitment to cleaner energy.
The tension between Japan’s clean energy objectives and its dependence on LNG is evident in its LNG strategy. Despite the GX plans, Japan’s heavy reliance on LNG underscores the challenge of balancing energy security with sustainability. The country’s approach to LNG procurement and market positioning reflects its efforts to navigate global energy market volatility.
Japan’s LNG History and Changing Demand
Japan began importing LNG in the late 1960s, becoming Asia’s first LNG importer, driven by limited domestic energy resources and industrial growth. The Fukushima disaster in 2011 led to increased LNG reliance as nuclear reactors were shut down, resulting in long-term contracts with suppliers from Australia, the US, and the Middle East.
By 2023, LNG accounted for 29% of Japan’s energy generation, making it the second-largest importer after China. However, Japan’s LNG consumption is declining, with imports reaching their lowest level since 2009. Factors contributing to this decline include a stagnant economy, nuclear reactor restarts, power market liberalization, and the rise of renewable energy sources.
Japan’s diminishing LNG demand has led to utilities facing surplus LNG, prompting increased overseas resale. Between fiscal 2018 and 2022, Japan’s LNG exports to third countries doubled. Currently, the country consumes two-thirds of its LNG imports, exporting the rest.
Japan’s Role in the Global LNG Market Expansion
Apart from being a major LNG consumer, Japan is positioning itself as a key player in the global LNG market. Japanese companies, supported by the government, are involved in all aspects of the LNG supply chain, emphasizing marketing and reselling LNG abroad.
Japan’s LNG procurement strategy has shifted towards flexible contracts without “destination clauses,” enhancing trading capabilities. The country is expanding its investments in LNG markets across Asia and aims to drive gas demand in Southeast Asia through infrastructure and power plant development.
Japan continues to rely on the US and Australia for LNG procurement, with equity deals and long-term contracts securing stable supply sources. Investments in LNG projects in these countries reflect Japan’s efforts to ensure a steady supply amid geopolitical uncertainties.
Geopolitical Challenges and Supply Risks
Despite declining demand, Japan remains exposed to supply risks due to heavy LNG import reliance. Recent threats, such as the Ukraine conflict and Middle East tensions, have impacted Japan’s LNG supply stability, highlighting the need for risk management efforts.
Japan’s response to these challenges includes strengthening partnerships with key LNG suppliers and developing a domestic strategic gas reserve to mitigate supply disruptions. The country’s focus on securing stable LNG supplies amid geopolitical tensions underscores its commitment to energy security.
Conclusion
Japanese policymakers face a delicate balance between energy security and climate goals. Despite criticism of Japan’s LNG expansion agenda, the country continues to view natural gas as a necessary and sustainable energy option. As Japan navigates these challenges, its commitment to balancing conventional energy sources with emission reduction targets remains a central focus of its energy policy discussions moving forward.