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Japan’s $10-bn energy funding pledge bucks growing anti-gas trend
An LNG tanker is seen at Petronet's terminal in Kochi in southern India. Image: Wikimapia.

Japan is offering billions to help its neighbors in SE Asia transition from coal to gas power, despite calls from critics in wealthy countries to ditch oil and gas projects as well

(AF) Japan is bucking the global trend to move away from natural gas by including it as a way to eventually reach carbon neutrality for both itself and Southeast Asian countries by offering some $10 billion in public gas and renewables funding.

The announcement two days ago comes amid a marked pivot, particularly in Europe and now in the US, away from nearly all things fossil fuel-related, including cleaner burning natural gas.

That shift has accelerated even more over just the past year with the Paris-based International Energy Agency (IEA) calling last month for defunding of fossil fuel projects, stating that there should be no new investment in coal or gas projects if the world is to reach net zero emissions by 2050.

In May the Asian Development Bank (ADB) also surprised many in the region by announcing it would no longer finance coal mining or oil and natural gas production and exploration. While this was a welcome move on the coal front, it appears premature to stop funding for natural gas production given the region’s plans to reduce coal and thus carbon emissions by shifting to gas and building infrastructure for that transition.

The IEA move came at the same time several western oil majors were called out for their operations. A court in The Hague on May 27 ordered Royal Dutch Shell to drastically cut its emission reduction targets. It also held the company responsible for the emissions of its consumers.

Shell plans to appeal the ruling, but the ruling was unprecedented as the judge dismissed its argument that governments alone were responsible for meeting the Paris Climate Accord targets.

Shell, for its part, became the world’s largest liquefied natural gas (LNG) player when it bought UK-based BG Group and its substantial gas assets for $53 billion in 2016.

At the time, natural gas was still considered one of the main avenues to help the world get CO2 emissions under control. Just a few years earlier in 2011, the IEA predicted in a report what it called “the golden age of gas.”

Since then, however, it has pared back, then denied that claim, stating that it didn’t declare the age of natural gas but was only asking a “pertinent” question.

Shell under pressure

Shell, to its credit, was already in the process of revamping its business model from an over-reliance on oil and gas production to more renewables, but last month’s court ruling will put even further pressure on the company to divest fossil fuel assets more quickly and reconfigure, all the while trying to remain as profitable as possible for shareholders.

However, Shell hasn’t been the only oil and gas major to kowtow over the past month.

Exxon Mobil, based in Irving, Texas, with a market capitalization of some $270 billion, was caught off-guard when investors voted two representatives of a small activist hedge fund to the board, vowing to force the energy giant to diversify away from fossil fuels.

In a separate move, an overwhelming majority of Chevron investors voted in favour of setting emissions reductions targets for the US-based company.

Similar moves will likely follow across the global energy platform, though national oil companies, particularly in Saudi Arabia, Russia and China will largely remain unaffected.

Enter the Asia-Pacific

While the move to decarbonize gathers tremendous momentum, both politically and even as a social movement among western countries, that pivot will be harder to manifest itself in Asia.

Why? It’s not that people and countries in the Asia-Pacific aren’t’ concerned about global warming and emissions as much as their European and American counterparts. It’s more basic than that. Namely, the region still relies on dirty burning coal for around 50% of its power generation. As such, the greener pivot for most countries in the region, particularly in developing Southeast and South Asia, has been a move to natural gas, which emits on average 50% less CO2 when used for power generation than coal.

The gas pivot in the region has gained so much momentum that China will soon pass Japan as the world’s largest LNG importer, while gas is earmarked to make up more than 15% of its energy mix by 2030, up from 10% in 2020.

Vietnam and the Philippines, for their parts, are facing offshore natural gas reserve depletion, in large part due to meddling in both countries’ territorial waters by China and are now in the middle of an LNG infrastructure build-out.

And India, which still uses coal for as much as 70% of its energy mix for both power generation and industry is also trying to turn to gas to reign in emissions – currently the third highest in the world after China and the US.

Last year, the Modi government pledged to make the country a natural gas-based economy, moving use of the fuel from 6.2% of its energy mix in 2020 to 15% by 2030. Bangladesh, Sri Lanka and Pakistan have also developed their own respective LNG infrastructure and facilities and are striking new term deals as well as buying more gas on the LNG spot market in Asia.

Japan’s pragmatism

And not to be outdone, Japan, with vast LNG and gas investments globally and at home, bucked the anti-gas trend two days ago by proposing some $10 billion in government funding for renewable and LNG projects, as part of its initiative to help support the energy transition in Southeast Asia and achieve global carbon neutrality in the region.

As part of the package, Japan has proposed to help Association of Southeast Asian (ASEAN) members formulate individual roadmaps for energy transition toward carbon neutrality, with regional and individual carbon neutrality outlooks for 2050, 2060 and 2070 provisionally calculated by the Economic Research Institute for ASEAN and East Asia (ERIA).

ASEAN has 10 members – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Japan’s strategy, not without its critics, takes a more pragmatic approach on how countries can decarbonize, realising the time and cost it will take to achieve these emission goals.

UK-listed oil and gas major BP seems to also be taking a page from the same playbook.

In a Bloomberg podcast interview this week BP’s executive vice-president of sustainability Giulia Chierchia advocated an integration of fuel technologies to help reach carbon neutrality. This includes renewables, but also oil and gas, mostly as transition fuels going forward, and also hydrogen, in a world where renewables will account for 60% of energy by 2060.

This strategy, however, differs from many that advocate the immediate removable of all oil and gas production. That view doesn’t recognize the massive amount of capital and time it takes to move to more renewables, particular green hydrogen, which is still a number of years away from achieving both economies of scale and fossil fuel cost parity.

In other words, critics dismiss the principles of sound energy economics. Time is also needed to allow energy companies to successfully divest more fossil fuel assets, while using those funds for cleaner fuel choices.

 

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Tim Daiss

Tim has been working in energy (LNG, solar, wind) markets in the Asia-Pacific for more than 10 years, based in Taiwan, the Philippines and now Vietnam. He has performed project risk analysis and consulting for US, UK and Singapore energy consultancies and media outlets such as Forbes, S&P Global Platts, Nasdaq and others. He is also founder of an energy project capital raising firm, APAC Energy Consultancy.

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