Many of Australia’s gas projects would not have been able to proceed without financial support from Japan. Huge public loans from taxpayers in Japan are supporting Australia’s already massive fossil gas sector. As it grows, Japan is also becoming a significant gas dealer, exporting more gas to other nations than it is importing from Australia.
Japan is becoming known as a fossil fuel holdout even as the rest of the globe quickly transitions to a clean energy future. Japan, which has the fourth largest economy in the world, has historically relied on imports of fossil fuels. Japan has concentrated on gas, while China has covered its deserts with solar plants.
These initiatives undercut Australia’s transition to clean energy industries and make it more difficult for the country to meet its climate goals. There is a risk that new gas developments may draw personnel and capital away from these export sectors.
However, things could alter. As part of its Future Made in Australia plans, Australia is spending a lot of money on green power, green manufacturing, and green exports; this could lead to a greener long-term partnership between the two countries.
Creating new clean energy alliances with energy-hungry Asian countries like China, South Korea, and Japan may increase investment, foster new clean energy exports, and improve climate cooperation.
Australian Gas, Japanese Finance
Japan is funding new offshore gas projects in Australia out of concern for energy security; these projects most likely wouldn’t proceed without Japanese support.
The world’s greatest supplier of foreign public funding for gas production is Japan. While some countries, such as Australia, have made the commitment to stop funding fossil fuels internationally, Japan has continued to do so.
For instance, Woodside, the largest gas company in Australia, received AUD 1.5 billion in loans from the Japan Bank for International Cooperation last month in order to develop the Scarborough gas field, which is located offshore of Western Australia. The Japanese bank also gave USD 1.2 billion to JERA, a power company in Japan, so that JERA could purchase a 15% interest in the project and the right to a portion of the LNG that is generated.
It would be less probable for new gas projects to move forward without this kind of financial assistance.
There’s no guarantee that other donors will step up. Australia produces gas at a comparatively high cost because of its remote locations and high operating expenses. For investors, Australian gas projects during the last ten years have generally resulted in poor returns, delays, and overspending.
Australian gas projects will have challenges in the next few years in supplying gas at prices that are competitive internationally. The Russian invasion of Ukraine in 2022 caused a sharp increase in the market for LNG. The globe is currently dealing with a tremendous gas surplus.
Large additional LNG volumes from less expensive producers in the Middle East, primarily Qatar, and North America will come online in two years, at the same time that gas demand declines in important markets. Based on their own calculations, the Australian government forecasts that the price of LNG from these sources will be significantly less than the cost of production in Australia.
Australia’s increasingly uncompetitive gas exports would lose market share if we left it up to the market. It isn’t, however, left up to the market. Japan is funding new gas projects to give the impression that they are financially feasible. And that makes Australia’s transition to a profitable green economy considerably more difficult.
Tokyo’s Neon Lights Will Shine Further
Australian gas shipments, according to Japanese envoy Yamagami Shingo in 2023, are essential to maintaining Tokyo’s neon lights.
Japan is currently exporting more LNG to other Asian countries than it is bringing in from Australia. Japanese gas companies have agreements to purchase more gas than Japan will need domestically during the next ten years, to resell the excess gas in other Asian markets.
This is directly related to official policy, which supports Japanese firms in meeting that demand by providing financial support for gas import terminals and gas-fired power plants, to stimulate demand for gas in Southeast Asia.
This is not a secret. It’s an undefined objective. The Japanese government wants its companies to “handle” 100 million tons of LNG annually by 2030, which is significantly more than Japan can consume for energy purposes.
Why? The government of Japan considers it critical to its energy security to retain influence in the LNG market in the area.
Japan’s Energy Security with Renewables
The gas industry has attempted to position gas as a transition fuel or as cleaner than coal. Gas is a hazardous fossil fuel. Most of it is methane, which has an 80-fold higher warming potential than carbon dioxide. Almost one-third (30%) of the excess heat that has accumulated since the Industrial Revolution has come from methane.
Australian gas exports, according to Woodside CEO Meg O’Neill, “may help Asia to decarbonise by replacing coal.” However, gas emissions can rival those of coal. Leaks of methane are frequent throughout the gas delivery network. Gas pollution can be comparable to that of coal with only very small leakage.
While purchasing and reselling Australian gas, Japan is greening its electricity system. As gas-fired electricity declines, the government now intends to increase the share of renewable energy sources in power generation, from 18% in 2019 to 37% by 2030.
Japan’s domestic gas use is already declining. From 2010 to 2022, it decreased by 18%. The demand for gas decreased by 8% in 2023 alone, as per the reports.
Accelerating the transition to renewable energy sources would enhance Japan’s energy security by decreasing reliance on gas imports. According to recent estimates, Japan might have a 90% clean energy grid by 2035.
Australian gas supplies would be running low without Japanese funding.
Australia’s gas business expanded significantly in the five years leading up to 2017. Australia emerged as the global leader in LNG exports by the year 2019. This is noteworthy, according to research from the Institute for Energy Economics and Financial Analysis, considering how isolated and meagre Australia’s gas reserves are.
Japan’s generosity and other international subsidies contributed to Australia’s prominence in the fossil fuel industry. However, these subsidies won’t work in our long-term best interests. The government wants to promote its green sectors, but allowing subsidised investment in new gas projects diverts capital, labour, and supply-chain capacity in other directions.
This does not imply a retreat from Japan. Japan needs energy desperately. However, it can be obtained without using fossil fuels. The two countries can collaborate to supply green ammonia for industry and fertilisers, green hydrogen for transportation and industry, and essential minerals and green metals for batteries and renewable energy sources.