Japan supports G7 gas, but corporations may face long-term issues. Last month, Japan’s energy businesses welcomed the G7’s backing for natural gas investment, but analysts warn that the fossil fuel may cause long-term issues.

Resource-poor Japan, the world’s largest LNG consumer, is committed to gas as a transition fuel to attain its net-zero carbon emission objectives while guaranteeing energy security. Still, other G7 members want to phase out fossil fuels sooner rather than later.
Climate activists worry Japan’s reliance on gas may postpone global climate change targets, especially since its energy companies make big profits from their investments.

Despite disagreements between Japan and Europe, the G7 climate ministers agreed last month that gas investments “can be appropriate to help address potential market shortfalls” caused by Russia’s invasion of Ukraine and energy market disruptions.

On Monday, Takehiro Honjo, chairman of the Japan Gas Association, said the G7’s endorsement of natural gas investments reduces investment risk for Japanese corporations looking to keep spending.
Analysts worry that Japan’s long-term energy sector carbon emission reduction ambitions will lower gas project value.

“The short lead time of shale gas or LNG export projects and the contract flexibility fit well with what major consumers including Japan and Europe are looking for in the era of uncertainty,” said Refinitiv senior analyst of Japan power research Yoko Nobuoka.

However, Japanese corporations will avoid gas projects, especially those with significant lead periods. “The country’s long-term decarbonization ambition,” she stated.

Japan supports gas, mostly methane, and emits CO2 when used for energy. However, new gas investments would harm climate ambitions.
The International Energy Agency (IEA) recommends no new fossil fuel expenditures to reduce global warming to 1.5 degrees Celsius (2.7 Fahrenheit).

Gas investments have made Japan’s energy corporations record profits. After the Ukraine invasion, Germany and other G7 nations invested in LNG infrastructure.

Russia’s Sakhalin Island LNG facility is Japan’s third-largest gas supplier.

Because of that dependency, Japanese energy corporations want to diversify their gas supply to Australia and the U.S.

Last Monday, Marubeni Corp (8002.T) CEO Masumi Kakinoki said gas “will be utilised as a very important resource in the future.”

Tokyo Gas (9531.T), the Japanese capital’s largest gas supplier with LNG and other fossil fuel assets, applauded the G7 gas statement as it prepares to expand in Asian gas infrastructure and U.S. shale gas upstream assets.

Eneos Holdings (5020.T), Japan’s largest oil refiner, would invest 180 billion yen in its oil and gas upstream division over three years, including LNG expansion in Asia.

However, Japan’s goal to reduce carbon emissions may make these gas investments risky.

The G7 climate and energy ministers agreed to accelerate renewable energy, which may reduce gas demand.

The IEA expects worldwide gas consumption to plateau this decade, while Japan’s finance ministry data shows a decline in demand in recent months.

Refinitiv’s Nobuoka said upstream, and LNG gas assets could become stranded by 2030.

“New gas investments risk being stranded and will likely fail to deliver the needed transition,” said Maria Pastukhova, senior policy advisor at independent climate think tank E3G.

“Many clean energy solutions can provide energy access and security faster and more sustainably.”