In September 2024, the Australian government unveiled, declaring its ambition to make the country a “renewable superpower.” The blueprint placed hydrogen and green iron at the center of its industrial policy, promising world-leading costs and a decisive role in reshaping global trade in clean energy.
Just six months later, in March 2025, a senior executive from one of Japan’s largest power utilities issued a warning in Tokyo: Australia’s status as Japan’s preferred liquefied natural gas (LNG) supplier is at risk. Rising project costs, shifting regulations and uncertainty over Canberra’s long-term gas strategy, the executive argued, are undermining the trust that underpinned a multi-decade partnership.
Taken together, these two moments expose a deeper fracture. Australia is asking for early Japanese backing of untested green-commodity projects. Japan, however, is questioning whether its most reliable LNG partner still offers the stability required for multi-billion-dollar bets. The disconnect is not just a political squabble; it is a structural problem in how each country frames the transition era. Unless Canberra and Tokyo align on a single narrative that investors believe, the partnership risks drifting into a holding pattern that diverts capital elsewhere.
And in energy markets where first-mover advantage compounds into standards, market share, and infrastructure dominance, hesitation is costly.
At first glance, the clash looks like two separate debates. In one, Australia insists on moving quickly into green hydrogen, ammonia, and green iron, banking on its abundance of cheap renewable energy. In the other, Japan complains that its trusted LNG supply chain is being squeezed by Australian cost inflation and shifting rules, from project approvals to the Safeguard Mechanism’s emissions obligations.
But the two disputes are joined at the hip. Both reflect a single question: can Australia and Japan craft a durable framework that reduces long-term sovereign risk for investors? Without that framework, each side defaults to caution — and the risk-adjusted capital flows to other jurisdictions.
From Canberra’s vantage point, Tokyo’s energy policy looks hesitant. Japan’s decarbonisation targets leave ample room to redirect imported LNG to Southeast Asia, rather than aggressively cut its own use. Tokyo, in other words, appears content to stretch its fossil fuel dependence while dressing it in regional decarbonisation rhetoric.
From Tokyo’s perspective, the risk lies on the Australian side. Canberra’s approach to resource taxation, environmental approvals, and gas export strategy appears to shift every few years. Multi-decade LNG assets worth tens of billions cannot run on political mood swings. If Australia cannot guarantee stability, Japan will diversify toward U.S. or Middle Eastern suppliers.
Both sides are waiting for certainty. Each interprets the other’s position as hesitation, while investors interpret the stalemate as a reason to look elsewhere.
For Japan, the cautious stance is rational. Building large-scale hydrogen, ammonia, or green-iron capacity involves enormous sunk costs. Once constructed, such plants cannot be easily repurposed. A premature bet risks stranding assets before they generate returns.
That is why Tokyo sticks to its S+3E doctrine — safety, energy security, economic efficiency, and environment. The framework ties domestic climate targets to regional decarbonisation, while preserving LNG as a backstop against supply shocks. It values optionality above speed.
This means Japanese investors move in small, staged projects rather than giant leaps. They prefer pilot-scale hydrogen imports, test cargos of ammonia, and shared feasibility studies. Early commitments happen only when they deliver something irreplaceable — exclusive supply rights, influence over international standards, or guaranteed long-term cost advantages.
For Australia, this caution reads like foot-dragging. Every year without Japanese anchor commitments is a year lost in scaling production, forfeiting the compounding benefits of first-mover advantage. The absence of long-term contracts delays infrastructure build-out, undermines standard-setting influence, and allows rival exporters to catch up.
Worse, some in Canberra interpret Japan’s hedging as a deliberate strategy to lock in overseas dependence on LNG. By keeping gas in the mix, Tokyo secures leverage while Australia shoulders the opportunity cost of delay.
The asymmetry flips when it comes to LNG. Japan has already spent heavily on import terminals and gas-fired power plants. These sunk costs ensure that its infrastructure will run as long as variable costs are covered.
That gives Tokyo freedom. It can demand greater flexibility from suppliers and diversify its contracts across the United States, Middle East, and Africa. LNG buyers, not producers, hold the upper hand.
For Canberra, the burden is heavier. Australia must guarantee long-term supply security, even as its own climate politics push it toward cutting gas dependence. Japanese investors, meanwhile, remain exposed to policy instability. Canberra’s shifting emissions rules, such as the Safeguard Mechanism, alter the economics of Australian LNG without warning.
Japan notices. Its executives ask: if Australia is willing to shift rules midstream on LNG, what stops it from doing the same on hydrogen or green iron once it holds a cost advantage?
The mistrust runs both ways. Australians fear Japanese negotiators will drag out talks for years, using “caution” as leverage to secure better terms. Japanese buyers fear Australia will exploit its resource position to reopen contracts later.
This dance of mistrust produces mirror-image grievances.
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Japan’s worry: early green-commodity commitments may become liabilities if Australia later changes fiscal or regulatory terms.
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Australia’s worry: Japanese caution is a preview of endless bargaining, even when economics already tilt in Australia’s favor.
Both logics are politically reasonable. Both are dismissed by the other side as misplaced. Together they produce stability — but of the wrong kind. Neither side moves first. Capital flows to safer jurisdictions. And the market-shaping opportunities slip away.
The missing piece is narrative. Not spin, but a coherent story that investors can believe.
For Japan, that story must show that early anchor commitments secure enduring commercial value and standards influence. For Australia, it must prove that policy and fiscal settings are stable enough to underwrite 30-year investments.
Green commodities and LNG cannot be treated as separate debates. Both test the same institutions: whether Canberra and Tokyo can guarantee long-term certainty. Investors price both under a single sovereign-risk profile.
A shared narrative is therefore not a matter of diplomacy. It is an economic instrument that lowers perceived risk, reduces the cost of capital, and accelerates deployment. Without it, cost advantages on paper remain theoretical.
Even if Canberra and Tokyo agree in principle, domestic politics will test the narrative.
In Australia, critics will warn that giving Japanese buyers durable rights — on pricing, certification, or approvals — amounts to selling assets cheaply. The politics of “foreign control” remain potent.
In Japan, skeptics will frame anchor commitments as concentrated risk. Why should a resource-poor country tie itself even tighter to one supplier, when diversification is the safer path?
The answer to both criticisms is symmetrical: without trusted anchor buyers, projects do not proceed. Without anchor supplier guarantees, long-term investments will not flow. Anchor rights are not giveaways; they are insurance policies against shocks and tools for shaping global standards.
The Australia–Japan energy relationship is no stranger to such trade-offs. The NARA Treaty of 1976 formalised resource cooperation, underpinning the coal, iron ore, and LNG trades that fueled Asia’s growth for half a century.
That treaty’s 50th anniversary arrives in 2026. The milestone offers more than symbolism. It is an opportunity to restate shared purpose in the transition era.
Practical steps could:
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Stabilising approvals and fiscal settings in Australia, to reduce regulatory surprises.
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Harmonising certification standards for hydrogen, ammonia, and green iron, ensuring early cargoes are fungible across markets.
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Designing reciprocal commitments: Japan secures long-term anchor rights, Australia guarantees policy stability.
Such a framework would transform mutual suspicion into mutual assurance.
Geology and geography underwrote the first half-century of Australia–Japan energy trade. Australia had the resources, Japan had the demand. Trust grew with every shipment of coal and LNG.
The next half-century will not be delivered by geology alone. Hydrogen and green iron are not natural gifts; they are manufactured commodities, capital-intensive and policy-sensitive.
Lower costs will not automatically translate into global leadership. Only a coherent narrative — one that turns lower costs into lower risk — can convert proposals into plants and ports.
If Canberra and Tokyo succeed, they will lock in durable first-mover advantages, shaping the rules and infrastructure of the new energy economy. If they fail, capital will follow safer narratives, no matter what Australia’s cost curves promise.
The September 2024 hydrogen strategy and the March 2025 LNG warning were not isolated events. They were signals of the same structural challenge: a partnership caught between ambition and caution, with trust strained on both sides.
The Australia–Japan relationship does not need more feasibility studies or political declarations. It needs a shared story that investors believe. One that proves early commitments buy enduring value, and that neither side will use caution or cost advantage as a weapon later.
