War Imperils Japan’s Energy Security

War Imperils Japan’s Energy Security

War Imperils Japan's Energy Security

  • Russia’s invasion of Ukraine and the ensuing energy crisis have exacerbated Japan’s vulnerabilities as a heavy importer of LNG and crude.
  • Tokyo has stepped up security cooperation with the US and Europe, including to send a message to China on Taiwan.
  • But the crisis has also exposed Japan and its Western allies’ different views on the energy transition, underpinned by Japan’s unique set of energy security concerns.

Japanese Prime Minister Fumio Kishida has imposed tougher sanctions than his predecessors on Russia — Japan’s northern neighbor and a key energy supplier — but has stopped short of imposing an embargo on Russian crude. With little indigenous natural resources, energy security has always been a top priority for Japan, the world’s largest LNG market and one of the world’s largest crude importers. Japan’s mountainous terrain, deep waters and high population density also mean it faces constraints on scaling up renewables.

Japan’s Russia Jolt

The Ukraine crisis has upset Japan’s plans to position Russia as a strategic energy supplier to reduce its heavy reliance on the Middle East. Former Premier Shinzo Abe believed that a strong bilateral economic relationship would help resolve a longstanding territorial dispute over a group of islands, and that engaging Russia would discourage China from banding together with Russia against Japan.

As a G7 member (and G7 chair this year), the scale of the Ukraine crisis makes it difficult for Japan to be seen as out of step with its allies on its response to Russia, but Taiwan is the bigger driver. “The Japanese leadership was truly shocked by Russia’s invasion of Ukraine. They are in earnest when they express concern that a Ukraine crisis today could be a Taiwan crisis tomorrow,” said James Brown of Temple University’s Tokyo campus. “Tokyo wants to send a clear message to China that an attack on Taiwan would be met with a firm and coordinated response.” Japan’s concerns were underscored by the recent release of a new National Security Strategy to boost annual defence spending to 2% of GDP in 2027.

Japan is participating in the G7-led price cap on Russian crude and products exports. But Tokyo has refrained from joining its allies in imposing an embargo on Russian oil supplies, instead seeking exemptions for exports from Russia’s Sakhalin-2 project, in which Japanese firms are investors. The government also urged Japanese firms to retain their equity stakes in the Sakhalin-1 and Sakhalin-2 projects, with Sakhalin-2 an important source of LNG for Japan. Data from analytics firm Kpler show that Japan’s 2022 LNG imports from Russia were up 2% on the previous year.

Neither does Japan want to alienate Russia for security reasons, a source with a local think-tank said, pointing to Japan’s close geographical proximity to Russia and Tokyo’s enduring concern of Russia moving closer to China. At the G7 meeting in Hiroshima in May, the Ukraine war and opposition to any unilateral attempts to change the status quo — a thinly veiled reference to China — are expected to be a key focus.

Feeling increasingly isolated amid a rising China, unpredictable North Korea and aggressive Russia in the region, Japan is stepping up security cooperation with a wider group of allies. The US remains Japan’s most important security partner, Brown said, but Japan now wishes to supplement the US alliance with closer ties to other security partners, especially Australia and India, while France and the UK are also priorities. The Reciprocal Access Agreements Japan recently inked with the UK and Australia allow signatories to deploy forces on each other’s soil.

Energy Transition Divides With EU

While geopolitics have brought Japan and its EU allies closer, they differ greatly on their approaches to the energy transition — and Japan is expected to promote its version of a “realistic energy transition” for Asia at the G7 ministerial climate, energy and environment meeting in Sapporo in April. This envisages a continued role for cleaner LNG and coal in Asian developing economies, seen as key to powering economic growth while reducing greenhouse gas emissions and ensuring affordability. Japan is also expected to urge the EU to show greater support for nuclear and new LNG investments to ensure stability in energy markets.

Indeed, Japanese energy players have quietly blamed the EU’s unrealistic energy policy — include shutting down nuclear power plants with a view to replacing them with renewables — for the current energy crisis, with Japan bearing the brunt of high LNG prices. Japan, which has not introduced a national carbon price, is also wary of new EU trade measures like the carbon border adjustment mechanism. It fears that trade measures to achieve environmental objectives are WTO-incompatible and would make Japan’s exports lose their competitiveness.

Still, under Japan’s 6th strategic energy plan, renewables leapt to a 36%-38% target for power generation, versus the previous 22%-24%, with offshore wind seen as the next frontier for renewables in Japan. But unlike the EU, which wants to phase out coal and favors green hydrogen, Japan promotes co-firing ammonia in coal-fired power plants and prefers to commercialize blue hydrogen/ammonia first, as it believes green hydrogen faces a time lag to commerciality, and is vulnerable to the intermittencies of renewables as feedstocks. Tokyo is also promoting carbon capture and storage (CCS) to decarbonize its emissions.

Asia Outreach

The current energy crisis and a 2050 carbon neutrality goal have emboldened Japan to make a big change in its post-Fukushima energy policy by pledging to restart idling nuclear reactors, and allow lifetime extensions and even newbuilds. Nuclear is targeted to account for 20%-22% of power generation in 2030, fossil fuels 41% (largely split between LNG and coal), and hydrogen/ammonia 1%. High LNG prices and tight supply have also provided impetus for the Japanese government to push for and help finance new LNG investments, with the US expected to be a key destination.

Japanese companies are also focusing on developing ammonia/hydrogen and CCS technologies that they hope to export to coal-reliant Southeast Asia, in line with Tokyo promoting its “realistic energy transition.” Japanese firms Jera and IHI are carrying out a trial to burn 20% ammonia at a domestic coal-fired power plant, with an eye on replicating this in Indonesia, Vietnam, the Philippines and Thailand, which have young coal fleets and need to ensure energy affordability.

Japan’s industrial approach also works as a political strategy to seek clout in emerging economies that are concerned about China’s increasing assertiveness, and being courted by China. Kishida has secured support from Indonesia for his concept of an “Asia Zero-Emissions Community,” aimed at reducing emissions in Asia while supporting economic growth through Japanese loans and investments — in essence a focused Japanese version of China’s Belt and Road Initiative.

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