Japan’s Energy Strategy Could Reshape Australia’s Gas Landscape

Australia gas industry

Australia’s gas industry has been significantly supported by Japanese investments, primarily through massive public loans from Japanese taxpayers. This financial backing has propelled Australia’s fossil gas industry to considerable heights. However, Japan, while emerging as a major gas trader, is also grappling with its role in the global shift towards clean energy. Despite the world’s rapid move towards sustainable energy sources, Japan, the world’s fourth-largest economy, continues to be a stronghold for fossil fuels.

Japan has long been dependent on foreign sources of fossil fuels to meet its energy needs. Unlike China, which has heavily invested in solar energy, Japan has focused on gas. In an effort to secure its energy future, Japan has been subsidizing new offshore gas projects in Australia, projects that might not have materialized otherwise. Japan stands as the largest provider of international public finance for gas production globally, even as other countries, including Australia, have pledged to end international finance for fossil fuels.

Last month, the Japan Bank for International Cooperation (JBIC) provided Woodside, Australia’s largest gas corporation, with A$1.5 billion (US$992 million) in loans to develop the Scarborough gas field off Western Australia. Additionally, Japanese power utility JERA received A$1.2 billion (US$794 million) from the same bank to acquire a 15% stake in the project, securing rights to a share of the liquefied natural gas (LNG) produced.

Without such financial support, new gas projects in Australia would face significant challenges. The high costs associated with remote locations and operational expenses make gas production in Australia relatively expensive. Over the past decade, Australian gas projects have frequently been delivered late and over budget, offering poor returns for investors. Looking ahead, these projects will struggle to deliver gas at internationally competitive prices, especially with the anticipated influx of cheaper LNG from the Middle East and North America.

If left to market forces, Australia’s increasingly uncompetitive gas exports would likely lose market share. However, Japanese subsidies are ensuring the continuation of these projects, making it difficult for Australia to transition to a more lucrative green economy.

The Japanese ambassador, Yamagami Shingo, claimed last year that Australian gas exports were vital to keeping Tokyo’s neon lights glowing. In reality, Japan is now reselling more LNG to other Asian nations than it imports from Australia. Japanese gas corporations are contracted to buy more gas over the next decade than Japan will use domestically, planning to sell the excess in other Asian markets. This strategy is a direct result of official policy aimed at creating new demand for gas in Southeast Asia by offering financial support for gas import terminals and gas-fired power plants and supporting Japanese corporations to meet that demand.

By 2030, Japan aims for its corporations to handle 100 million tonnes of LNG annually, far more than its own energy needs. This policy underscores Japan’s desire to maintain influence in the region’s LNG market, which it views as crucial to its energy security.

The gas industry often promotes gas as a cleaner alternative to coal or as a transition fuel. However, gas, primarily methane, is a potent greenhouse gas, 80 times more effective at trapping heat in the atmosphere than carbon dioxide over a 20-year period. Methane has contributed almost a third of the additional heat in the atmosphere since the Industrial Revolution.

Woodside CEO Meg O’Neill asserts that Australian gas exports can help Asia decarbonize by replacing coal. However, methane leaks throughout the gas supply chain mean that gas can be just as polluting as coal. Even minimal leakage can negate any environmental benefits.

While Japan continues to buy and resell Australian gas, its own power grid is becoming greener. The Japanese government plans to double the share of renewables in power generation from 18% in 2019 to 37% by 2030, while reducing gas-fired power. Japan’s domestic demand for gas has already declined, falling 18% over the decade leading to 2022, with an 8% drop in 2023 alone. Accelerating the shift to renewables could further enhance Japan’s energy security by reducing dependence on imported gas. Recent analysis suggests Japan could achieve a 90% clean energy system by 2035.

In the five years leading up to 2017, Australia’s gas industry saw remarkable growth, culminating in Australia becoming the world’s largest LNG exporter by 2019. According to the Institute for Energy Economics and Financial Analysis, this growth is notable given Australia’s relatively remote and small gas reserves.

International subsidies, including substantial support from Japan, have been pivotal in transforming Australia into a fossil fuel powerhouse. However, these subsidies do not serve Australia’s long-term interests. Continued subsidized investment in new gas projects diverts resources, workforce, and supply-chain capacity away from the green industries that the Australian government aims to develop for the future.

This does not mean that Australia should turn its back on Japan. Japan has a significant need for energy, which can be met through cleaner means. Japan could partner with Australia to supply critical minerals and green metals for batteries and renewables, green ammonia for fertilizers and industry, and green hydrogen for transport and industry. Such partnerships could bolster climate cooperation, foster new clean energy exports, and attract investment in green technologies.

As part of the Australian government’s Future Made in Australia policies, there is a significant push towards green power, green manufacturing, and green exports. The enduring partnership between Australia and Japan could pivot towards these green industries. Developing new clean energy partnerships with energy-hungry Asian nations, such as Japan, China, and South Korea, could prove beneficial. These partnerships would not only support Australia’s climate goals but also help in transitioning the workforce and investment towards sustainable industries.

Collaborating with Japan on clean energy projects offers both economic and environmental benefits. For instance, Australia could export green hydrogen, which is produced using renewable energy sources and has a wide range of applications in transport and industry. Similarly, green ammonia, another potential export, can be used as a fertilizer and in various industrial processes, reducing the carbon footprint of these activities.

Additionally, Australia possesses abundant reserves of critical minerals essential for the production of batteries and renewable energy technologies. By partnering with Japan, Australia could establish a reliable supply chain for these minerals, supporting the development of renewable energy infrastructure in both countries.

Such collaborations would also strengthen regional energy security. By reducing reliance on fossil fuels and transitioning to renewable energy sources, Australia and Japan can enhance their energy independence. This shift would mitigate the risks associated with volatile fossil fuel markets and geopolitical tensions.

Furthermore, transitioning to renewable energy aligns with global efforts to combat climate change. By reducing greenhouse gas emissions and investing in sustainable technologies, Australia and Japan can contribute to the global goal of limiting temperature rise to 1.5°C above pre-industrial levels.

The relationship between Japan and Australia, historically built on fossil fuel trade, has the potential to evolve into a partnership centered on clean energy. As the world moves towards a sustainable future, both countries can benefit from leveraging their strengths in green technologies and renewable energy resources. This transition is not just an opportunity but a necessity to ensure long-term economic prosperity and environmental sustainability. The shift towards renewable energy offers a path to energy security, economic growth, and a significant reduction in carbon emissions, reinforcing the need for collaborative efforts in the face of global climate challenges.

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