Recent geopolitical upheavals once again highlight how vulnerable Japan can be to ‘black swan’ events. Japan already faces a tricky situation with Russia, which is a major LNG and coal provider, and there’s the perennial worry that conflict in the Middle East could cause havoc in energy supply chains.
In contrast, Japanese companies have long seen Australia as their most reliable energy partner for everything from coal and LNG, to uranium, and most recently, hydrogen. As a nation that depends on imports to meet its energy needs, Japan prefers maintaining stable supplies with allied nations.
Recently, cracks have opened in those friendly foundations. Most of the energy deals that underpin $147 billion of annual trade between Japan and Australia relate to fossil fuels. Both countries have pledged to hit net zero emissions by 2050 and even wrote their commitments in law. However, the interim path and the timing of their energy transitions vary.
Net zero causes anxiety in Japan in ways that major allies often don’t fully appreciate. LNG, oil and coal still account for almost three-quarters of the country’s power mix. That figure will only drop to 40% by 2030, assuming Japan can even meet its near-term goals by accelerating the rollout of clean energy sources.
And so, Japan would like to retain access to Australian fossil fuels – especially natural gas – until cleaner alternatives are in place. Australia’s policies, however, are pushing for a faster resolution. The two will need to find an optimal balance to transition their trade into the net zero era.