INTERVIEW: Japan hopes for predictability, stability in Australia's gas reservation scheme

Japan hopes to see predictability and stability in Australia's domestic gas reservation scheme legislation amid ongoing discussions on the matter, a top official overseeing energy resources policy told Platts, part of S&P Global Energy, on Oct. 16.

"The government is watching this issue with considerable interest, and we have maintained ongoing communication with the Australian government on the matter," Tetsuya Azuma, director of the Energy Resources Development Division at the Ministry of Economy, Trade and Industry, said in an interview.

"Predictability and stability in the investment environment are extremely important. In particular, it is essential that existing contracts are properly respected," Azuma said. "In terms of predictability, it is also important that the rules are not applied retroactively. That may essentially be another way of saying that existing contracts should be respected, but these principles are extremely important."

"If such principles are not respected, there is a risk of discouraging investment. That would ultimately be an issue not only for the region but also for Australia itself, because it is important that investment in Australia continues," he added. "From that perspective, we have consistently conveyed that we expect transparency, predictability and stability to be properly maintained."

The Australian government introduced the national domestic gas reservation legislation on Oct. 14. The new domestic supply obligation is set at 20% of LNG exports, calibrated to forecast domestic demand, and is scheduled to take effect on Jan. 1, 2028.

Azuma's comments come as Japanese companies express concern about Australia's policy development. JERA Co. Inc., for one, said Oct. 15 that it is concerned about the "unintended consequences" of Australia's domestic gas reservation scheme legislation, "like many other long-term customers of and investors in Australian LNG."

"We have told the Australian side that it is important to listen closely to the views of companies... we are asking Australia to ensure that these principles are properly safeguarded through its institutional framework," Azuma said. "So rather than saying, 'If this happens, Japan will do this,' our position is that Australia should design the system properly so that we do not reach that situation in the first place."

Azuma took the helm of the division in July, having previously served as director of the ministry's Fuel Supply Infrastructure Policy Division, and immediately responded to crude oil supply disruptions through the Strait of Hormuz following the start of the conflict in the Middle East.

Asked about his policy priorities, Azuma said, "Put simply, the priority is ensuring stable energy supplies. In particular, since around March, amid changes in the Middle East situation and continued difficulties in transiting the Strait of Hormuz, we believe energy security has become increasingly important."

In the absence of risk-free sources of crude oil and LNG supplies, Azuma said, "Given that reality, I think it has once again become extremely important to ensure sufficient diversification and spread the risks."

The Japanese Cabinet approved a set of bills on Oct. 13, including one to rationalize the use of designated sea lanes to ensure the stable transport of crude oil and oil products. Under the bill, importers such as refiners, petrochemical producers and trading houses will receive grants when they procure crude oil and oil products from suppliers outside the Strait of Hormuz.

Asked how much Japan needs to reduce its dependence on the Strait of Hormuz for shipping, Azuma said that is something to be discussed going forward.

Once the new framework comes into operation following the enactment of the legislation, Azuma added that the government is expected to establish something along the lines of implementation guidelines, which would include targets for rationalizing the use of designated transportation routes.

LNG security

To bolster LNG supply security, Azuma said Japan is working to diversify its supply sources, expand global markets and increase its buffer of hard-to-store LNG.

"So it is important to maintain a well-diversified portfolio, and if we can diversify it even further, all the better," Azuma said, adding that expanding global LNG transactions would, in itself, help enhance the market's ability to balance supply and demand.

"The volume and breadth of the market increase, the global [LNG] market naturally becomes more flexible and better able to respond to supply shocks," he added.

Unlike Europe, which has underground gas storage facilities, Azuma said, "In Japan, we are not necessarily ruling out such options, but in more practical terms, and particularly in terms of measures that can be implemented in the near term, we already have mechanisms such as SBL (Strategic Buffer LNG), which in a sense provide a buffer by effectively holding a call option."

"There was also the recent arrangement between JOGMEC [Japan Organization for Metals and Energy Security] and [Malaysia's] Petronas concerning emergency procurement. That is essentially a call option, giving Japan the right to take a certain volume in an emergency," he added.

JOGMEC said Sept. 11 that it has agreed with Petronas on a framework for cooperation to ensure stable LNG supplies during emergencies.

"Essentially, we first create a basic template or framework. The details of how it would actually work in each individual case would probably need to be worked out more thoroughly, but we establish a basic template that sets out the fundamental understanding that a certain type of supply will be provided in the event of an emergency," Azuma said. "I believe this is the first arrangement that effectively allows the country to exercise a call option for supplies."

SBL was first introduced in December 2023 for a three-month period, with JERA approved as the first supplier, as part of Japan's efforts to enhance LNG security. JERA secured at least three LNG cargoes in total for the third winter season, spanning December 2025 to February 2026.

"As for SBL itself, we basically maintain the option [to purchase one LNG cargo a month from JERA] throughout the year, so that we can purchase LNG when necessary," Azuma said, adding that this is the current operating arrangement.

A spokesperson for JERA said Oct. 16 that the company is responding in accordance with METI's published policy guidelines and the approved Supply Security Plan, but declined to comment on the plan's details.

Azuma was also deputy director in charge of resources diplomacy in METI's oil and gas division, commonly known as Sekitenka — the predecessor to the Energy Resources Development Division — in the aftermath of the Great East Japan Earthquake, which struck offshore Fukushima on March 11, 2011.

Asked about the differences between the energy crisis response following the 2011 Fukushima earthquake and that prompted by the Middle East conflict, Azuma said, "At that time [in 2011], there had been an earthquake and a tsunami, creating a risk of insufficient power supply. So, in a sense, the problem originated domestically."

"It was not a situation where supplies could not be procured from the global market. Rather, the main task was how to mobilize and secure as much supply capacity as possible within Japan," he said.

"This time, however, I think the situation is quite different. In terms of the oil and gas markets themselves, this is a global event with an extremely significant impact," Azuma said, adding that Japan has not experienced such a significant domestic impact on gas so far, making the nature of the situation quite different.

"That said, both situations are challenging. That has not changed. This is an extremely important issue," he added.