Why Japan wants LNG exporters to produce more despite weak domestic demand

One reason is that Japan is re-selling the fuel at a markup.

Japan's liquefied natural gas (LNG) imports have declined by 25% over the past decade as the country shifts toward nuclear power and renewables. Despite this, Japan is urging major exporters like Canada, the United States, and Australia to increase production.

According to the Institute for Energy Economics and Financial Analysis (IEEFA), one potential reason behind this is that Japanese buyers are re-selling the fuel into other markets at a markup. In 2022, the country resold almost 32 million tonnes of LNG to other countries.

This resale volume exceeds the annual export capacity of the three Canadian LNG projects with a combined output of 19 million tonnes per annum (MTPA). 

An IEEFA report found that two of the largest LNG buyers globally, Japan’s JERA and Tokyo GAS buying LNG from Canada, will result in a surplus of LNG supplies through 2030.

As a result, these companies are actively seeking opportunities to resell to other Asian markets and have proposed at least 30 gas and LNG-related projects in South and Southeast Asia. These actions threaten to lock in fossil fuel infrastructure in Asia for decades, rather than facilitate the region’s clean energy transition.

IEEFA noted that this counterclaims Canadian LNG advocates who argue that without these energy supplies, Japan will be forced to rely on Russia or Qatar. However, Japan’s combined imports from both countries have fallen 65% since 2013 without any Canadian LNG.

LNG industry representatives often tout the role that Canadian gas exports can play in reducing Asia’s emissions by displacing coal-fired power. But neither China nor India is using LNG to replace coal.

Renewable energy is providing the biggest competition for coal in both countries. This sets up a challenging business case for Canadian LNG expansion as countries in Europe and Northeast Asia also cut demand.

Instead of building out LNG infrastructure under the guise of energy security and decarbonisation, Canadian policymakers can support renewable energy growth through diplomatic channels, not the expansion of Japanese gas interests throughout Asia.