Unpacking the benefits of Japan's LNG strategy for Australia and beyond

Japan’s LNG strategy is good for Australia – and the region
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Japan’s LNG strategy is good for Australia – and the region
Home | In the News | Japan’s LNG strategy is good for Australia – and the region
– by Paul Everingham
The relationship with Japan is one of the closest and most important that Australia enjoys within the Asia Pacific.
The annual Japan-Australia Investment Report released by Herbert Smith Freehills and the Australian National University found direct Japanese investment into Australia reached a record $141.1 billion in 2024.
It’s not just an economic alliance either. Increasingly, the Japan-Australia bond has been built around shared security interests and a desire to ensure regional stability.
Liquefied natural gas (LNG) supply intersects with both sides of Australia’s relationship with Japan.
More than 35 years after the first exports from the North West Shelf Project, Japanese investment remains pivotal to the development of new Australian gas projects. Recent investments from JERA and LNG Japan totalling more than $2 billion will help bring the Scarborough project to production next year.
At the other end of the value chain, Australian LNG keeps the lights on in Japan.
For the past seven years, Australia has been the No. 1 supplier of the LNG that is Japan’s main source of power generation. Trust forged through dependable supply of critical energy has reinforced the strategic alliance between the two countries.
Against the backdrop of this mutually beneficial relationship, it’s been disappointing to see recent criticism of Japan’s handling of Australian LNG. Suggestions that Japan “profiteers” from the on-selling of LNG fail to properly consider the energy circumstances of one of Australia’s key trading partners and how regional and global energy markets work.
As a country that imports more than 90 per cent of its energy, Japan’s priority is always energy security. Just as initial investments in LNG were shaped by the oil crises of the early 1970s, Japan’s current approach grew from the Fukushima incident of 2011.
With nuclear generation shut down and timelines for a restart uncertain, it was apparent ramped up gas-fired power generation was the only realistic substitute.
The Japanese government recognised that a deeper and more liquid LNG market would provide additional resilience to supply shocks and more optionality when future crises emerged. At the same time, gas supplies in Southeast Asia were declining, and it became clear this region too would become a significant importer of LNG.
As part of a national response, the Government of Japan sought to support Japanese companies developing LNG demand and broader energy supply chains. The Japan Oil, Gas and Metals Corporation (JOGMEC) assumed an expanded role, facilitating these developments and making direct investments when necessary.
Japan’s approach has been to purchase enough LNG to ensure energy security no matter the disruptions in global markets. Diversity of supply has been a central part of this approach (and a very prudent one, given developments after Russia’s invasion of Ukraine and more recently the impact of conflict in the Middle East).
This strategy has underpinned the development of major Australian fields such as Ichthys and Wheatstone, led to large supply deals from Prelude and Gorgon and continues with investments in projects like Scarborough and Barossa.  In each case, the commitment of Japanese importers to Australian LNG has not only been financially significant but long-term.
While this has provided vital certainty for Australian developers – meaning job and revenue-creating projects can go ahead – it has created risk for buyers in Japan. Offtake deals of 20-plus years are often “take or pay”, meaning a set volume of LNG must be accepted (or at least paid for) each year regardless of how demand fluctuates in Japan.
As a tradeoff to this risk, the terms of Japanese deals for Australian LNG have become more flexible over the past decade, particularly around final destination. This allows the buyer to respond better to drops in demand and make any excess volumes available to an increasingly liquid Asian LNG market.
Given Southeast Asia’s expanding appetite for LNG and Japan’s strong relationships within the region, this has become a strongly synergistic framework. By taking a more active role in energy trade, Japan helps the countries around it.
Accusations of “profiteering” on Japan’s behalf miss the mark on several points, including the price at which any on-selling occurs. With a range of different mechanisms for pricing long-term and spot cargoes, there are no guarantees that the price Japanese companies receive for on-selling LNG will be higher than what they paid for it.
Equally, criticism of Japan’s LNG strategy is disconnected from how energy markets function.
Japan isn’t the only country in the region that returns LNG to market if it is deemed to be surplus – China and South Korea are also active this way. The market now has many pure LNG traders, while producers are increasingly operating on a portfolio basis that sends cargoes to the most efficient location.
In this way, the LNG market is developing and maturing much as global oil trade has.
When Japan on-sells to other established Asian LNG importers such as Korea, Taiwan or Thailand, it supports energy security at a regional level.
When Japan on-sells to newer LNG buyers like the Philippines and Vietnam it supports these countries’ plans to reduce their reliance on coal and decarbonise power sectors.
This second cohort will be critical over the next 25 years as Asia works towards ambitious net zero targets. Recent analysis by S&P Global Commodity Insights found LNG from Australia, the US and Qatar had 47 per cent average lower lifecycle carbon intensity than coal used in power generation in Japan, the Philippines and Vietnam.
Ultimately, it shouldn’t matter how Australian LNG reaches its destination – what is truly important is that it gets there and fulfills the role that countries have identified.
By helping provide LNG required by fast-growing Southeast Asian economies and facilitating investment and infrastructure required to use it, Japan takes a leadership position in broader decarbonisation.
Australia, which has more than sufficient gas resources that can be developed to meet domestic and Asian demand, should be proud to see its LNG used to drive down regional emissions.
And Japan should be applauded rather than criticised for its contribution to regional energy security and transition.
This article was originally published in Energy News Bulletin.
Paul Everingham is the inaugural CEO of the Asia Natural Gas and Energy Association (ANGEA), which works with governments, industries and communities in Asia, providing affordable solutions that promote energy security, economic growth and decarbonisation.
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