Chairman’s Message

While PM Shigeru Ishiba has been struggling with political difficulties following the defeat in the Upper House election in July, he has also been leading Japan in a series of international energy initiatives.

<Main Points>

1. Tariff deal with the US

On July 23, Japan and the US agreed on a deal for the US to lower most of the tariffs on Japanese imports to 15%. In exchange, Japan pledged to invest $550 billion dollars in the US. A new investment vehicle will support investments in US energy infrastructure and production such as LNG, advanced fuels, and grid modernization.
　Increased market access for American producers will be enabled, including major expansion of US energy exports to Japan. The Fact Sheet released by the White House refers to Alaskan LNG, stating that “the US and Japan are exploring a new offtake agreement”.
　Similar deals were struck between the US, EU, and ROK (Republic of Korea). Energy imports appear to be one of the major pillars of the deals. But there seems to be a clear difference between Japan’s deal and the deals made by the EU and ROK. The EU appears to have pledged to procure $750 billion of US energy products in three years. ROK appears to have pledged to procure $100 billion of US LNG and other US energy products in four years. On the other hand, the Japan-US deal has no specific number attached to the expansion of US energy exports to Japan. The reference to Alaskan LNG is limited to an exploration of a new offtake agreement.
　As Japan has a solid demand for LNG and the desire to procure substantial amount of LNG through long term contracts, Japan will continue to have a strong interest in US LNG exports. But it is important to stress that Japan will be looking for competitive LNG supplies from diversified sources to enhance its energy security. Several US LNG projects should have good chances as well as LNG projects from other countries. The key is competitiveness.

2. Summit meeting with the leaders of Africa: TICAD

TICAD9, the Ninth Tokyo International Conference on Africa, a summit meeting between PM Shigeru Ishiba and the leaders of Africa, was held between August 20 and 22 in Japan. TICAD was started in 1993, with meetings held in Japan and the African Continent, alternating every three years in recent years. The previous meeting, TICAD8, was held in Tunisia in 2022 following TICAD7, which was convened in Japan six years ago.
　TICAD has been the major initiative on Africa by Japan. The significance was mainly diplomatic based on the large number of countries on the African continent. This year’s TICAD represents the additional interest in Africa as a growing market and supplier of energy and critical minerals. This transformation is evidenced by the large number of MOUs and other agreements signed at this year’s TICAD reaching 324, more than triple the number signed in TICAD8 three years ago.
　The TICAD9 Declaration recognized the various pathways for energy transition, reflecting the different conditions of each country and stressed the importance of simultaneously achieving economic growth, energy security, and decarbonization. A fair and equitable energy transition that satisfies the growing energy demand of Africa while pursuing the global climate goals was emphasized. Utilization of rich renewable energy potential in Africa through investment in renewable energies and in the grid was highlighted. The urgency of ensuring power access for the population of 300 million was stressed. The supply potential of critical minerals in Africa was certainly noted. Japan emphasized its intention to contribute to the African economy through technology transfer, local processing, JVs, and local value added. Japan is committed to fair and equitable partnerships with its African partners.
　Energy-related projects represented a significant portion of the 324 MOUs and agreements signed at TICAD9. Conventional energy sources continue to play important roles in Africa. For example, an MOU was signed with Mozambique, which is expected to become a major LNG exporter to Japan. Tanzania also has the potential for LNG export. LPG is expected to support the transition from traditional biofuel to modern fuel in the Sub-Saharan region.
　A number of renewable energy projects (solar, wind, and hydro) were also signed. In some cases, battery storage systems were combined. Enhancement of grids were also pursued. A project to enhance energy efficiency by using heat pumps was signed as well. There was even a project to explore clean ammonia bunkering. Critical minerals-related MOUs were signed too. Carbon credits were targeted, including the use of biochar. Several MOUs referred to green financing/green bonds.
　MOUs are not legally binding. However, the number of the MOUs signed at TICAD9 is a testament to the great potential for collaboration between Japan and African countries in various energy sectors. I believe that many of these projects will materialize in the near future.

3. Visit by the new ROK President Lee Jae-myung may start a new era

The new ROK President Lee Jae-myung visited Japan on August 23 to meet PM Ishiba. President Lee chose Japan as his first foreign visit since assuming his position. His choice is highly regarded in Japan together with his emphasis on having a future orientation in the bilateral relationship.
　The bilateral relationship has been plagued by repeated diplomatic tensions triggered mostly by issues related to past history. Tensions often erupted during the liberal governments. As President Lee is from the liberal camp, most Japanese have been expecting a return to a cold and rocky bilateral relationship. Against this very low expectation, President Lee is pleasantly surprising many Japanese with his positive gestures toward Japan.
　A joint press release was made public after the leaders’ meeting. It was very short, just two pages. But this is the first document to be issued in the past 17 years after the bilateral leaders’ meeting. The joint press release is evidence of the possibility of a positive change for the bilateral relationship. The bilateral relationship was significantly improved during the former President Yoon Suk-yeol who came from the conservative camp. If the improved bilateral relationship can survive the change in the political leadership in ROK, it may serve as the foundation for serious collaboration in the energy sector which has very long timeframes.
　The joint press release, being very short, makes a brief reference to bilateral collaboration in the economy and industry sectors. Two sectors were identified as promising areas for collaboration in future industries. One area was AI and the other was hydrogen. Being one of the only two areas highlighted, we can see the great expectations attached to hydrogen in the bilateral collaboration. I believe that as Japan and ROK have the history of leading the development of the LNG market, Japan and ROK can once again lead the world in developing the hydrogen market. Japan and ROK have so many similarities in the challenges they face in the energy sector, the two countries can be natural partners in developing this new hydrogen market. A new era of cooperation between Japan and ROK may be emerging with hydrogen as one of the key areas of collaboration.

4. Economic Security Cooperation with India focuses on critical minerals & clean energy

PM Modi of India visited Japan to meet with PM Ishiba on August 29 as part of the annual summit meetings between the two leaders. The Japan-India Economic Security Initiative was announced as one of the major outputs of the summit meeting. Among the six priority areas in the Initiative, critical minerals and clean energy were highlighted as priority areas for cooperation.
　Japan and India have been working together to bolster critical minerals supply chains through partnership in the bilateral Mineral Security Partnership and the Indo-Pacific Economic Framework and Quad Critical Minerals Initiatives. Japan-India cooperation in critical minerals will be further strengthened with the signing of an MOC between METI of Japan and the Ministry of Mines of India in the field of mineral resources. Toyota Tsusho’s rare earth refining project in Andhra Pradesh was noted as aiming to establish a stable supply chain for rare earth minerals.
　In the clean energy area, the importance of simultaneously ensuring energy security, promoting sustainable economic growth, and addressing climate change was acknowledged. The two leaders reaffirmed their shared recognition that there is no single pathway to achieving a net-zero economy, but rather various pathways that reflect each country’s national circumstances.
　A number of specific initiatives were launched to strengthen bilateral energy cooperation. An MOC on the Joint Crediting Mechanism (JCM) was signed which will enable the development of carbon credits and transfers between the two countries. Compressed biogas replacing compressed natural gas is one of the promising areas for JCM. The Joint Declaration of Intent on Clean Hydrogen and Ammonia was announced to acknowledge the great potential of collaboration between the two countries in clean hydrogen/ammonia, capitalizing on the rich renewable energy in India which can help produce clean hydrogen/ammonia, and the advanced technology of Japanese players in this sector. Battery supply chain cooperation will be promoted to foster a healthy battery market and ecosystem.
　Potential areas of cooperation in the energy sector extends further. Cooperation in Electricity and Energy Conservation includes transition financing, variable speed hydro pumping, grid stabilization, energy storage, energy-efficient AC compressors, and cofiring of clean hydrogen/ammonia in thermal power projects. Cooperation in New and Renewable Energy covers promotion of renewable energy supply chains and exploring of green methanol. Cooperation in Petroleum and Natural gas includes cooperation in the Global Early Alert Mechanism, information/data sharing, and new fuels such as biofuels and e-fuels. Cooperation in Coal will explore possibilities of CCUS to realize cleaner and more sustainable ways to utilize coal.

5. Way forward: International initiatives in energy continues to be pursued

As climate change is a global challenge, it is necessary for Japan to promote cooperation with the emerging and developing economies including African countries and India to reduce CO2 while supporting their economic growth and rising living standards. Japan will continue strengthening cooperation with other countries including our neighbors in Southeast Asia.
　The energy transition cannot be realized without innovation. Especially since new energy sources face the challenge of the high cost and the need to develop markets, it is important to work with other partners in the development and expansion of new energy sources and technologies. Cooperation with ROK in hydrogen/ammonia is very important in this regard. Japan will seek cooperation with other economies in this aspect as well.
　Energy security cannot be achieved by any single country. Especially for Japan, a country with very limited natural resources and renewable energy potential, it clearly needs cooperation with other friends. LNG is one of the most important areas that Japan needs to enhance energy security. Critical minerals are becoming as important in energy security enhancement. Japan will continue to work with its friends to enhance energy security.
　These are the reasons why international initiatives in the energy sector are of utmost importance for Japan. I will update you on the developments in this area in the Chairman’s Messages in the coming months.