The Institute for Energy Economics and Financial Analysis (IEEFA) has raised concerns about the European Commission’s proposal to explore Japan’s liquefied natural gas (LNG) investment model.
Analysts Sam Reynolds and Christopher Doleman argue that this approach is inappropriate for Europe’s evolving energy landscape.
In a February 2025 policy paper, the European Commission introduced an “Action Plan for Affordable Energy” as part of its broader Clean Industrial Deal.
The plan recommends reducing reliance on expensive imported fossil fuels by expanding renewable energy and energy efficiency. However, it also proposes emulating Japan’s LNG investment strategy, including direct overseas investments and joint purchasing.
According to Reynolds and Doleman, Japan’s LNG strategy is not a simple or easily replicable model. Instead, they describe it as a “highly complex and costly” system supported by decades of public financing and multiple stakeholders operating across the entire LNG value chain.
They note that Japanese institutions such as the Japan Bank for International Cooperation (JBIC), Japan International Cooperation Agency (JICA), and Japan Organization for Metals and Energy Security (JOGMEC) have played pivotal roles.
These bodies provide financial and technical support to Japanese companies pursuing overseas gas investments.
The authors report that, over the past decade, Japan’s public financial institutions have allocated US$56 billion to overseas gas projects. JBIC alone has contributed nearly US$19 billion since 2016.
This funding has helped de-risk private investment by offering insurance, guarantees, and concessional loans.
Japan’s Ministry of Economy, Trade and Industry (METI) has further targeted 100 million tonnes per annum of LNG trade by 2030, despite Japan’s domestic LNG demand declining 25% since 2014.
Reynolds and Doleman highlight that this fixed target compels Japanese companies to continue investing in supply and expand trading to foreign markets.
However, such a model demands significant trading acumen. Japan’s LNG strategy includes reselling cargoes in South and Southeast Asia, where Japanese firms have established trading desks, charter LNG carriers, and invested in downstream infrastructure.
Reynolds and Doleman caution that this shift introduces risk, as Japanese companies move from predictable, regulated domestic markets to volatile global commodity trading.
These transitions may affect credit ratings and the attractiveness of their financial instruments.
The authors point out that while long-term contracts protect Japan from spot market volatility, they have not insulated the country from rising import costs.
Japan spent US$41 billion on LNG imports in 2024, up from US$30 billion in 2016. During the 2022 energy crisis, the LNG bill surged past US$64 billion, exacerbating Japan’s trade deficit.
Despite having significant influence in LNG markets, Japan’s heavy reliance on the fuel has resulted in household electricity prices that are reportedly more than double the Asian average.
The authors argue that this model, even with Japan’s resources and experience, has not delivered cheap or stable energy.
They suggest Europe would face even greater challenges in replicating such a system, especially given declining LNG demand on the continent and limited institutional capacity for full-spectrum LNG trading.
Instead, Reynolds and Doleman advise that Europe should focus on accelerating clean energy adoption and reducing overall gas usage.
They believe this approach is more sustainable and economically prudent than pursuing LNG investments that would entrench fossil fuel dependency.
Their analysis concludes that Japan’s strategy is tailored to its own economic, geographic, and institutional conditions and cannot serve as a universal model for other regions.
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