The Japanese model of liquefied natural gas (LNG) investment is not suitable for Europe, according to the clean energy-leaning think tank the Institute of Energy Economics and Financial Analysis (IEEFA).
The European Commission’s recently published Affordable Energy Action Plan stated that Europe should consider following the same path as Japan, which encourages direct overseas investment in export projects and joint purchasing by European importers.
But a new IEEFA paper argues that Japan’s complex, costly and multi-faceted approach is not really a good fit for the continent.
“Rather than a single blueprint for LNG investment, Japan’s approach is an amalgam of policy directives, financial levers, and energy security incentives that have developed over more than seven decades,” it notes.
In addition to spending on LNG value chain development, the country paid $41bn for LNG imports in 2024, up from $30bn in 2016. Japan’s LNG imports bill has increased despite falling demand and Japanese buyers’ influence in the global market.
As the country’s LNG demand falls, Japanese companies are investing in new supply while developing trading segments and relationships with key LNG growth markets throughout Asia. This shift is risky, exposing Japanese traders to a looming global oversupply.
“Europe may face even more significant challenges in marketing LNG overseas as its own demand falls, given the costs and complexities involved in Japan’s full value chain approach,” the paper notes.
“Instead, resources may be better spent on supporting existing efforts to reduce gas demand and accelerate clean energy technologies rather than on LNG investments and contracts that would only lock in long-term fossil fuel exposure.”
A separate IEEFA paper finds that geopolitical risks are pushing up costs.
A prominent example is the Mozambique LNG project, which is one of Japan’s key overseas investments but one that has faced severe security threats and delays.
The project, led by TotalEnergies with significant stakes held by Japan’s Mitsui and Jogmec, was expected to be completed by 2024.
However, insurgent attacks in northern Mozambique have repeatedly delayed the project. Escalating violence forced TotalEnergies to declare force majeure in 2021, suspending operations indefinitely.
In this case, security risks have delayed production and increased project costs, raising concerns about long-term financial viability, with $14.4bn of public funding from Jogmec, JBIC, and Nexi, as well as private finance from Mitsui already committed.
“Prolonged instability raises questions about whether Mozambique LNG can achieve stable operations, exposing Japanese investors to financial losses and supply uncertainty,” it states.
Japan’s Seventh Strategic Energy Plan (SEP), approved in February, emphasises a “stable energy supply” in the country’s energy security strategy.
The plan aims to increase the self-development ratio, a metric officially referred to as the “independent development ratio,” which encourages Japanese companies to invest directly in fossil fuel development and production abroad. A key focus of this strategy is ensuring a stable natural gas supply, which today accounts for over 30% of Japan’s power.
“Japan should prioritise self-sufficiency targets focused on renewable energy rather than pursuing fossil fuel self-development ratios,” the paper concludes.
Six leading Japanese firms with an eye on building an international green ammonia value chain have today signed a Memorandum of Understanding to explore investment opportunities in a production project in Odisha, eastern India.
