The double standard of Japan’s energy companies abroad

Despite its pledge to achieve net-zero emissions by 2050, Japan is trying to maintain its influence in the international liquefied natural gas (LNG) market, especially in Asia.

This makes it impossible for Japanese companies to achieve net zero and potentially jeopardizes decarbonization goals throughout the continent.

Japan’s largest gas utility, Tokyo Gas, recently announced a roadmap for achieving carbon neutrality in its business operations by midcentury. The plan involves interim targets to reduce greenhouse gas emissions by 60% by 2040 compared with 2022 levels, largely by deploying renewables and replacing LNG, a fossil fuel, with cleaner substitutes.

However, the roadmap applies only to domestic operations, despite the company’s active role in developing LNG infrastructure abroad, particularly in Southeast Asia.

This indicates a broader trend: Japanese utilities are increasingly reselling LNG and cultivating demand in emerging markets as domestic gas demand falls.

Japan’s largest utilities could have a large surplus of LNG through to 2030, as highlighted in a recent report compiled by our organization, the Institute for Energy Economics and Financial Analysis (IEEFA), based in the United States.

Yet, utilities continue to increase their LNG supply portfolios, driven by government policies designed to maintain Japan’s prominent role in global LNG markets. By prioritizing this agenda over decarbonization, these policies undermine the ability of corporate players to enact the energy transition both at home and abroad.

Japan’s LNG imports peaked in 2014 and fell to their lowest level in a decade last year. In contrast, overseas LNG sales by Japanese companies have almost tripled in recent years.

Tokyo Gas, for example, has quadrupled its trading volumes since 2017, and its “ultimate target” is to develop Southeast Asia’s LNG value chain.

The company has proposed gas and LNG-related infrastructure throughout the region. It recently announced a 1.5-gigawatt (GW) LNG-fired power plant and import terminal project in Vietnam — its second proposed LNG-to-power project there.

In Japan, the company’s gas sales have declined at an average annual rate of 4.5% since 2017. Yet, the company continues to sign deals to buy more LNG, potentially resulting in a surplus through to 2030.

For example, Tokyo Gas has committed to purchasing 1.3 million tonnes per annum (mtpa) of LNG from French energy company TotalEnergies’ operations in Mozambique. It has also signed early nonbinding agreements to buy a combined 1.4 mtpa from LNG Canada and Mexico’s Energia Costa Azul export project.

Scrapping these contracts would rebalance Tokyo Gas’ LNG portfolio and help ensure the company’s emissions reduction roadmap expands beyond the Japanese market. Indonesia’s Pertamina recently canceled its own contract to purchase gas from the aforementioned Mozambique project without penalty, suggesting Tokyo Gas could do the same.

Other Japanese utilities are also facing large LNG surpluses and investing in overseas infrastructure to boost demand for the fuel.

Jera, Japan’s largest power provider, is increasing its surplus of contracted LNG volumes, even though its gas needs have fallen at an average rate of 5.7% since 2017.

Over that time, the company’s trading volumes have increased from just 0.6 million tonnes (mt) to 6 mt in 2023. Earlier this year, Jera announced it was collaborating with Indonesia to develop the LNG value chain across the Southeast Asian country and, in 2022, it proposed a massive 4.5 GW LNG-fired power plant and import terminal in Vietnam in partnership with ExxonMobil.

Jera is also actively buying new LNG supplies in countries like Australia. In February, it acquired a 15.1% stake in Woodside Energy’s Scarborough gas field, which feeds the Pluto LNG export facility and, in May 2022, it finalized the purchase of a 12.5% stake in Santos’ Barossa gas field, which supplies the Darwin LNG export plant.

The state-owned Japan Bank for International Cooperation (JBIC) provided financing for both purchases.

Government policy is explicitly directing Japanese buyers to maintain their influence on global LNG transactions and cultivate markets overseas.

Despite declining domestic demand, the Ministry of Economy, Trade and Industry has set a target for Japanese companies to transact 100 mt of LNG by the end of this decade and is directing them to develop LNG projects in South and Southeast Asia.

Tokyo’s Asia Zero Emission Community (AZEC) is also promoting LNG demand in emerging Asian countries. Although the initiative claims to champion various pathways to net zero, in practice, it appears to lead to an LNG-heavy energy mix that suspiciously mimics Japan’s own.

Japan is also among the world’s largest public financiers of gas projects. Government agencies like JBIC and the Japan Organization for Metals and Energy Security have supported investments in the gas and LNG value chain via equity injections, loans and guarantees in several continents.

Abandoning LNG targets and refocusing financing away from the gas value chain would enable Japanese companies to play a more constructive role in deploying clean energy technologies.

If Japanese policymakers and companies continue promoting fossil fuels abroad, corporate strategies like Tokyo Gas’ latest emissions roadmap will never be truly net zero.