Japan’s Energy Transition Provides Opportunities for Australia

6 July 2011 FDI Team

Background

In the aftermath of Japan’s Fukushima Daiichi nuclear emergency, the country’s largest electricity company has announced a greater emphasis on liquefied natural gas (LNG), providing joint venture opportunities for Australia and Japan. 

Comment

The newly appointed president of Tokyo Electric Power (TEPCO), Toshio Nishizawa, has forecast greater Japanese reliance on LNG, following the continuing backlash from the Fukushima nuclear power plant disaster. Mr Nishizawa, who replaced Masatake Shimizu following his resignation in May, said in an interview in late June, that LNG thermal power generation would be at the core of an upcoming ten-year power supply plan to be compiled later this year. The president forecast that LNG thermal power generation will increase 40 per cent from current levels, stating that TEPCO will fast-track LNG-powered facilities to achieve this plan.

Qatar, Indonesia, Russia and other LNG exporting states have benefited from sudden Japanese demand and resulting price increases on the LNG spot market. Paul Davis, an industry analyst, argues that the “negotiation balance” of LNG supply has moved to the seller’s favour. Some suppliers are taking a hard line on the negotiation of contractual terms, including in ’pricing mechanisms, delivery flexibility, destination flexibility and right to make up on force majeure.’

Coupled with unfavourable terms of trade, current market leaders are unable to ensure certainty of supply, with Russia and Qatar representing little more than a temporary solution in long-term efforts for Japanese energy security. As demonstrated in the European and Eurasian markets, Russian gas supply has the potential to “ebb and flow” with diplomatic relations. Since the beginning of the “Arab Spring”, the long-term political stability of the Gulf remains a significant inhibitor to reliable hydrocarbon supply.

Within this context, bolstered by existing and emerging LNG projects, Australia represents a stable and preferable supplier of Japanese energy. To date, Woodside’s North West Shelf and ConocoPhillips’ Darwin development are the only two producing Australian LNG projects. Australia’s LNG influence in the immediate future is therefore limited. Within the next decade, however, Australia is expected to become a global market leader, as Pluto (2011), Browse (2014), Gorgon (2014), Wheatstone (2016) and other projects reach production.

While other suppliers profit from short-term sales on the LNG spot market, State and Federal Governments must market the “win-win” credentials of Australian LNG to Japan. Australian-Japanese relations are economically symbiotic, LNG will allow Australia to realise its economic potential and, conversely, ensure much-needed Japanese energy security for that nation’s manufacturing industry.

Stronger ties with TEPCO and other Japanese energy players may also provide Australian LNG with greater market opportunities and penetration, particularly in the rapidly urbanising and industrialising Asian markets. Prior to the Fukushima incident, TEPCO had been promoting its nuclear power business abroad. Mr Nishizawa has announced that, in light of current issues, TEPCO will ‘no longer be thinking about that except in Vietnam, where there has already been an agreement between the governments’. A strategic partnership, however, between Australian and Japanese entities promoting LNG to energy conscious states would provide economic opportunities, allay fears associated with the nuclear industry and potentially improve relations with Asian states.   

Liam McHugh

Strategic Analyst

FDI Northern Australia and Energy Security Research Programmes

[email protected]

 

Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International.

Published by Future Directions International Pty Ltd.
Suite 5, 202 Hampden Road, Nedlands WA 6009, Australia.