Key Findings
The European Commission’s recent Action Plan for Affordable Energy proposes exploring the “Japanese model” of liquefied natural gas (LNG) investment, which would encourage direct overseas investment in LNG export projects and joint purchasing by European importers.
However, Japan’s LNG investment approach is highly complex and costly, involving substantial public support and numerous players throughout the entire LNG value chain.
As Japan’s LNG demand declines, Japanese companies are investing in new supply while developing trading capabilities. Reselling excess LNG requires expertise in marketing, shipping, and downstream segments of the supply chain and exposes companies to uncertain cashflows compared to regulated returns in Japan’s domestic market.
Europe may face more significant challenges in marketing LNG overseas as its own demand falls. Instead, resources may be better spent on reducing gas demand and accelerating clean energy technologies rather than on LNG investments that would only lock in long-term fossil fuel exposure.
In February 2025, the European Commission released an “Action Plan for Affordable Energy” as part of its Clean Industrial Deal, aiming to reduce energy prices, stabilize markets, and mitigate future shocks to Europe’s energy system. The plan recognizes imported fossil fuels as the primary cause of high energy costs and recommends accelerating the development of cheaper renewables and energy efficiency alternatives.
However, the plan also proposes exploring the “Japanese model” of liquefied natural gas (LNG) investment, which would encourage direct overseas investment in LNG export projects and joint purchasing by European importers. This recommendation raises several important questions: What does Japan’s approach look like in practice? What are the costs and risks involved? Most importantly, should Japan be a guide at all for reducing Europe’s energy prices?
Japan's complex, costly, and multi-faceted approach: No universal model for Europe
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. These tools support the entire LNG value chain, not just export projects. More robust markets improve the country’s access to abundant LNG supplies, but also to demand centers where Japan can resell surplus LNG.
The approach also involves a wide variety of players. Public financial institutions, like the Japan Bank for International Cooperation (JBIC), often have statutory mandates to ensure domestic energy security through LNG financing. Other policy-based agencies, like the Japan International Cooperation Agency (JICA) and the Japan Organization for Metals and Energy Security (JOGMEC), provide financing and technical assistance, often to support Japanese interests abroad. Nippon Export and Investment Insurance (NEXI) issues insurance and guarantees to Japanese businesses in overseas transactions.
Consequently, Japan is considered among the largest providers of public finance for fossil fuels. Over the last decade, the country’s public financial institutions have allocated USD56 billion for overseas gas projects, primarily through loans and guarantees. JBIC has been the leading contributor, providing nearly USD19 billion for gas and LNG projects since 2016.
Public financing helps lower the hurdle rates for fossil fuel investments, encouraging private Japanese companies and banks to participate in LNG projects alongside publicly backed insurance, guarantees, loans, and equity investments. Three Japanese megabanks — Mitsubishi UFJ Financial Group, Mizuho, and SMBC Group — are among the world’s five largest financiers of LNG projects, providing over USD27 billion from 2021 to 2023.
Japan’s Ministry of Economy, Trade and Industry (METI) has also set a 2030 target for Japanese companies to transact at least 100 million tonnes per annum (mtpa) of LNG. Although Japan’s domestic LNG demand has fallen 25% since 2014, the fixed target implies that companies should continue investing in new LNG supplies while reselling more volumes overseas.
Japan’s approach requires significant flexibility and trading expertise
Japan’s long-term procurement strategy and investments in LNG projects aim to maintain its dominant industry position and secure more favorable prices while grappling with uncertainty in future energy demand. As some of the largest LNG importers in the world, Japanese companies have demonstrated their willingness to drive hard bargains with global suppliers, most recently with Australia.
However, Japanese companies must also be able to resell surplus LNG, given that nuclear and renewables are replacing the country’s domestic demand for the fuel. Japan’s largest LNG buyers have repeatedly stated their aim to resell more cargoes to South and Southeast Asia due to declining demand at home.
Reselling cargoes requires significant expertise in the trading, marketing, shipping, and downstream segments of the LNG value chain. Many Japanese buyers operate trading desks in key markets and charter LNG carriers directly, allowing them to respond to arbitrage opportunities in real-time. Downstream investments in import terminals, gas distribution networks, power plants, and others stimulate demand, creating resale opportunities. As of July 2024, Japanese companies were involved in over 30 downstream gas projects throughout Southeast Asia.
While some European oil and gas majors have these capabilities, developing LNG trading businesses may be expensive and risky for others. Japanese gas utilities that are increasingly focused on LNG resales are effectively shifting from predictable regulated returns in the domestic market to highly volatile earnings in global commodity markets. Embracing more uncertain cash flows has implications for both credit ratings and the suitability of equities and debt for different investors.
The “Japanese model” won’t make LNG cheap or stabilize prices
Japan’s LNG strategy has developed over decades and involved substantial public and private financial support. In addition to spending on LNG value chain development, the country paid USD41 billion for LNG imports in 2024, up from USD30 billion in 2016. Japan’s LNG import bill has increased despite falling demand and Japanese buyers’ influence in the global market.
Long-term LNG purchase contracts help insulate Japan from volatility in spot markets. However, customs data shows that the country’s LNG import bill still increased to over USD64 billion in 2022 following the Russian invasion of Ukraine, leading to a record trade deficit. As a result of high LNG dependence, Japan’s household electricity prices are reportedly more than double the average across Asia.
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. 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.
