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10.28.2024

The West Embraces Carbon Neutrality, Asia Embraces Pragmatism

By Vijay Jayaraj

While much of the Western world clamors about renewable energy and “carbon neutrality”, a different story is unfolding in the East. Asia — led by economic powerhouses like China, India and Japan – is doubling down on fossil fuels, recognizing their irreplaceable role in powering economic growth and improving living standards for billions.

Japan, which is sometimes represented as “a climate leader”, has taken the route of consolidating its fossil fuel imports, despite prominent pledges to the “green” agenda at international climate conferences. In a move that underscores the evolving dynamics of global energy markets, Japan and Italy have inked a landmark agreement for the supply of liquefied natural gas (LNG) to the Land of the Rising Sun.

Japan’s Shift from Nuclear to Natural Gas

For decades, nuclear power played a central role in Japan’s energy mix, providing a stable and relatively low-carbon source of electricity. Twenty-five years ago, nuclear energy accounted for nearly 30% of Japan’s electricity generation.

However, the catastrophic events at Fukushima Daiichi Nuclear Power Plant in 2011 made the country averse to splitting atoms. A dramatic reduction in nuclear capacity left a gaping hole in Japan’s energy portfolio, one that needed to be filled quickly and reliably. Enter natural gas.

Natural gas-fired power plants could be built relatively quickly and operated flexibly to meet fluctuating demand. By 2014, the country had become one of the world’s largest importers of LNG. In 2023, Japan imported a staggering 66 million tons of LNG, accounting for 16% of global LNG trade, second only to China.

Japan boasts over 37 LNG import terminals spread across its coastline, with a total storage capacity of around 242 million tons per year – the largest in the world and almost double that of China’s. These facilities allow Japan to maintain a strategic reserve of natural gas, providing a buffer against short-term supply disruptions and price spikes

Natural gas now accounts for nearly 40% of the country’s electricity generation. Along with coal, fossil fuels make up for 69% of the electricity produced in Japan. In short, LNG is the backbone of Japan’s energy system.

Japan Expands LNG Axis with Italy and South Korea

In order to further consolidate its LNG imports, Japan formalized an agreement last week allowing collaboration between Japan’s Organization for Metals and Energy Security (JOGMEC) and Eni S.p.A., an Italian multinational energy company.

In times of crisis or natural calamity, Tokyo will be granted preferential access to liquefied natural gas reserves from Eni. The move is a healthy diversification of Japan’s LNG supply sources, which is reliant heavily on LNG imports from Australia, Russia, Malaysia, Indonesia, Oman, and Qatar.

Eni, with its extensive LNG portfolio that spans regions such as Africa and Oceania, offers Japan the chance to strengthen its access to flexible LNG supply routes. The agreement will also allow Japan to tap into emerging LNG projects, such as the Coral North project in Mozambique, where Eni is a major player.

Eni supply will come in handy as Japan is looking at increasing its emergency gas stock. Yuya Hasegawa, an executive of Japan’s Ministry of Economy, Trade and Industry, says that from the mid- to late-2020s, Japan will aim to buy at least one cargo of 70,000 tons per month for its emergency buffer – four times previous annual purchases.

Japan is also looking to strengthen trade ties with South Korea in the natural gas sector. In a strategic alliance, Japan’s preeminent utility powerhouse JERA is joining forces with South Korea’s energy titan Korea Gas Corp.

As we look towards the 2030s and beyond, it’s clear that Asia will be the primary driver of global energy demand, with fossil fuels playing a central role in meeting this demand. While the West may be pushing towards a post-carbon future, Asia’s pragmatic embrace of coal, oil and natural gas reflects the realities of economic development and energy security in the world’s most populous and dynamic region.

This commentary was first published at RealClearMarkets on October 18, 2024.

Vijay Jayaraj is a Science and Research Associate at the CO2 Coalition, Arlington, Virginia. He holds an M.S. in environmental sciences from the University of East Anglia and a postgraduate degree in energy management from Robert Gordon University, both in the U.K., and a bachelor’s in engineering from Anna University, India.

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