War in Ukraine Boosts LNG Demand in Japan Despite Fossil Fuel Activism

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Dependence on LNG: Storage tank at Tokyo Electric Power Co.mpany’s gas-fired power plant in Futtsu © Tomohiro Ohsumi/Bloomberg

Environmental activists have launched a record number of demands for Japanese companies to act on fossil fuel investments – just as experts warn that funding for liquefied natural gas (LNG) projects will be needed for several years due to of the war in Ukraine.

During this year’s series of annual general meetings, climate activist groups, including Australian market forces and Japanese network Kiko, submitted shareholder proposals to four companies listed on the Stock Exchange. Tokyo, calling for a stronger commitment to the fight against climate change.

Among the companies were Japan’s second largest lender, SMFG, and Tepco, an electricity supplier in Tokyo. Activists say lifetime emissions from 10 LNG projects planned by these companies will be around 1.2 billion tonnes of carbon dioxide.

“Japan is at the forefront of a global economy-wide transition driven by the need to adapt to the threats and opportunities of the climate crisis,” Market Forces researcher Sachiko Suzuki said in a press release in April. “Change happens quickly and companies that fail to align their strategy put their future at serious risk. Investors are aware of these threats and are demanding action.

Lenders say they are caught in the middle. In an interview with the FT the same month, Masahiro Kihara, the chief executive of Japan’s third largest lender, Mizuho, ​​said the government should speed up the creation of a post-Ukraine energy plan, stressing that it was essential.

Mizuho CEO Masahiro Kihara called for more debate on energy policy and clarity on timelines © Bloomberg

“What I would like to see done is for the government and the private sector to have a very serious discussion about this,” Kihara said. “And I think that’s something that’s not being done right now by politicians. There is no debate on energy policy.

“There needs to be a discussion with a precise time horizon: for example, ‘until now, we will use LNG, afterwards, we will use renewables, etc.’. We need that kind of grand design. And relying on other countries has become very risky,” he added.

Amendments proposed by activists at general assemblies required two-thirds majority support and they were not adopted. Yet corporate executives say privately that they cannot ignore strong shareholder support for climate motions, even if they are not accepted.

A concrete example is a 2020 motion, when a climate group tabled the first such proposal in Mizuho. The motion prompted the country’s three largest banks to refrain from financing future fossil fuel projects.

Jera LNG-fired power station in Ichihara © Toru Hanai/Bloomberg

Workers inside the power plant © Akio Kon/Bloomberg

However, since Russia’s invasion of Ukraine in February, there have been several clear signs that the world is returning to more LNG, as spot market gas prices soar and Russia threatens to cut supply to more countries.

Late last month, the G7 group of industrialized nations said investing in LNG was a “necessary response to the current crisis”, adding that, “in these exceptional circumstances, state-backed investment in the gas sector may be appropriate as a temporary response”.

Another indicator, according to Kaushal Ramesh, gas and LNG analyst at consultancy Rystad Energy, is the signing of a 15-year deal by French utility Engie with Houston-based NextDecade, although talks have been stalled. suspended in 2020 after the French government raised environmental concerns. .

“The biggest sign of reversal is that European buyers are now signing 20-year contracts with the United States,” says Ramesh. “We are starting to see clear signs of a reversal of the ‘no fossil fuel’ policy.”

Ramesh cites a series of deals struck by US LNG companies as US exporters position themselves to fill the void as Europe turns away from Russian imports.

Venture Global, an exporter on the Gulf Coast, said it had reached an agreement to sell 1.5 million tonnes a year to EnBW, one of Germany’s largest energy companies, in the first binding deal to long term concluded by a German company to buy the United States. LNG.

Gas prices in Europe jumped after Russia cut capacity on its main gas export pipeline to Germany, fueling fears that Moscow is arming its gas exports in response to EU sanctions.

The International Energy Agency said Europe must prepare immediately for a complete halt to Russian gas exports this winter, urging governments to take action to reduce demand and keep nuclear power plants open.

Rystad Energy warns that demand for LNG will exceed supply by the end of this year. The consultancy adds that “although growing demand has prompted the biggest rush for new LNG projects globally in more than a decade, construction delays mean that material relief is unlikely only ‘after 2024’.

Scott Neilson, a partner at law firm Allen & Overy, says banks are “in a tough spot because they know a lot of their customers want to grow their businesses and their countries, and they have limited options.”

Neilson adds that it’s unclear whether resistance to lenders investing in LNG projects will affect funding at such a critical time, but adds: “Certainly not in the short term – maybe in the longer term when there are viable alternatives but, at the moment, there is a need for Asia-Pacific to move away from coal, frankly.

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