Amid energy supply woes, Japan looks to the U.S. as an LNG source

Energy security and calming international markets rattled by the war in Ukraine will be key items on the agenda when U.S. President Joe Biden arrives in Japan next week for meetings with Prime Minister Fumio Kishida and "the Quad," which comprises the leaders of Japan, Australia, India and the United States.

Biden’s visit is also an opportunity for the leaders of the U.S. and Japan to expand bilateral energy cooperation, including increased fossil fuel exports by the U.S. However, experts say that such exports might create political headaches for the president over the coming months as the U.S. looks to congressional elections in November.

Russian liquefied natural gas accounted for 8.8% of Japan’s LNG imports last year. With international sanctions on Russia affecting energy supplies, Japan is now looking toward its alliance partner, the U.S., as a source of LNG in particular.

During a visit to the U.S. earlier this month, economy minister Koichi Hagiuda met with U.S. Energy Secretary Jennifer Granholm, and told reporters that he had asked the U.S. to increase its domestic LNG production.

“The United States is not only a major energy consumer and producer, but also an indispensable country for securing a stable energy supply," Hagiuda said a new conference on May 10 after his return to Tokyo. "In particular, Japanese companies are interested in LNG because the U.S. has expansion plans for existing projects that can increase production in a relatively short period of time.”

Last year, U.S. LNG accounted for 9.5% of Japan’s 74.32 million tons of imports of the energy source, the fourth-largest amount after Australia, Malaysia and Qatar.

While Hagiuda did not specify which oil projects in the U.S. might increase production to help Japan and the international oil supply, Mitsui, Mitsubishi and NYK Line have investments in a Louisiana LNG project. Tokyo Electric Power Company Holdings and Chubu Electric, through a joint venture, as well as Osaka Gas are involved with another LNG project in Texas.

Energy experts see the upcoming Biden-Kishida and Quad meetings as an opportunity to focus not just on immediate energy issues created by disruptions stemming from the invasion of Ukraine.

“When the two leaders sit down to discuss energy, I think they will agree on the strategic importance of U.S. oil and gas for global energy security. Increasing production supply from the U.S., in terms of both oil and LNG, will be of great help to the global energy market and global energy security," said Ken Koyama, senior managing director and chief economist at the Institute of Energy Economics, Japan.

“Of course, a direct increase in U.S. oil and gas to Japan would help. But if U.S. oil and gas supplies continue to grow and contribute to the stabilization of international markets, that, in and of itself, would be a great contribution to the stabilization of the Japanese market,” he added.

But for the U.S., quickly ramping up production for export in the coming weeks, be it to Japan or elsewhere, could be politically sensitive.

Tom O’Sullivan, founder of the Tokyo-based energy consultancy firm Mathyos Global Advisory, sounded a note of caution about increased U.S. oil and LNG exports after Biden returns to Washington. The president could face some political pressure to keep such energy supplies in the U.S. to help ease inflation, although Japan might not have to worry.

“A dramatic increase in the exports of U.S. oil and perhaps LNG could be problematic in a U.S. election year when domestic gas prices are hitting record highs. Already, former Republican leaders, including former President Donald Trump, are raising this issue as primary elections take place in several key states this week,” he said.

“However, exceptions might be made for Japan, given the close security and economic ties between the two countries.”