Australia's Gas Industry Hangs By A Japanese Thread

Japanese power utility JERA also received A$1.2billion (US$794 million) from the Japanese bank to acquire a 15% stake in the project, gaining rights to a share of the liquefied natural gas (LNG) produced.

Without this kind of financial support, new gas projects would be less likely to proceed.

It is not certain other funders would step in. Gas production in Australia is relatively expensive, due to remote locations and high operating costs. Over the past decade, Australian gas projects have typically been delivered late and over budget and have delivered poor returns for investors.

In the years ahead, Australian gas projects will struggle to deliver gas at internationally competitive prices. In 2022, Russia's invasion of Ukraine triggered a surge in demand for LNG. Now, the world is facing a massive oversupply of gas .

In two years, large new LNG volumes will come online from lower-cost producers in the Middle East – mainly Qatar – and in North America, just as demand for gas falls in key markets. The Australian government's own analysis projects a much lower price of LNG from these producers than the cost of production in Australia.

If we left it up to the market, Australia's increasingly uncompetitive gas exports would lose market share. But it's not being left up to the market. Japan is underwriting new gas projects to make money-losing projects seem viable. And that makes it much harder for Australia to shift to a lucrative green economy.

Last year, Japanese ambassador Yamagami Shingo claimed Australian gas exports were crucial to keeping the neon lights of Tokyo 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 at home, and are planning to sell excess gas in other markets in Asia.

This is a direct result of official policy , which aims to create 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 supply that demand.

This is not hidden. It's an open goal. By 2030, the Japanese government wants its corporations to“handle” 100 million tonnes of LNG each year – far more than Japan will use to meet its own energy needs.

Why? Japan's government sees maintaining influence in the region's LNG market as important to its own energy security .

The gas industry has tried to brand gas as cleaner than coal or as a transition fuel. In reality, gas is a dangerous fossil fuel. It's largely methane, 80 times more potent in heating the planet than carbon dioxide. Methane has added almost a third (30%) of the extra heat building up since the Industrial Revolution.

Woodside chief Meg O'Neill claims Australian gas exports“can help Asia to decarbonize by replacing coal .” But gas can be just as polluting as coal. Methane leaks are very common across the gas supply chain. You only need a very low amount of leakage for gas to be on par with coal for pollution.

While Japan buys and resells Australian gas, its own power grid is greening. The government now plans to double the role of renewables – rising from 18% of power generation in 2019 to 37% by 2030 – while gas-fired power shrinks.

Japan's demand for gas at home is already falling. It fell 18% in the decade to 2022 . In 2023 alone, demand for gas fell by 8% .

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Shifting to renewables even faster would improve Japan's energy security by reducing dependence on imported gas. Recent analysis suggests Japan could achieve a 90% clean energy system by 2035 .

Without Japanese funds, Australian gas would be dwindling

In the five years to 2017, Australia's gas industry grew enormously. By 2019 Australia became the world's largest LNG exporter . Analysis from the Institute for Energy Economics and Financial Analysis points out this is remarkable given how remote and relatively small Australia's gas reserves are.

International subsidies – including Japan's largesse – helped turn Australia into a fossil fuel giant. But these subsidies will not serve our interests long term. Continuing to allow subsidized investment in new gas projects diverts investment, workforce, and supply-chain capacity away from the green industries the government wants to grow for the future.

This doesn't mean turning our back on Japan. Japan has a huge need for energy. But it can get it without resorting to fossil fuels. 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.

Acknowledgments: Ben McLeod (Quantitative analyst, Climate Council) and Josh Runciman (Lead analyst, Australian Gas, IEEFA) provided data used in the article.

Wesley Morgan is Research Fellow, Griffith Asia Institute, Griffith University

This article is republished from The Conversation under a Creative Commons license. Read the original article .

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