Chairman’s Message

The Japanese Government has submitted bills to the Diet to enhance energy security and to support energy transition. This month’s Message highlights the elements of the bill.

<Main Points>

Bills for energy security and energy transition have been submitted to the Diet.

Diversification of sources and transportation routes of oil will be supported.

Investment & guarantees for bypass pipelines will be made possible.

Investment & guarantees for recycling of critical minerals will be made possible.

Investment & guarantees for overseas biofuel production will be made possible.

CfD for CCS will be supported by JOGMEC, a government entity.

1. Bills for energy security and energy transition have been submitted to the Diet.

The Japanese Government has submitted bills to the Diet to enhance energy security in light of the conflict in the Middle East and to support energy transition. As the ruling coalition controls more than two-thirds of the Lower House of the Diet, the bill is expected to be passed by the Diet by early December, before the end of the current session. Even if the coalition parties fall short of a majority in the Upper House, the two-thirds majority in the Lower House enables the passage of the bills.
　The conflict in the Middle East has exposed the vulnerabilities of Japan’s dependence on imported oil and gas. In particular, Japan is heavily dependent on imports of Middle East oil coming through the Strait of Hormuz. The major purpose of the bills is to address such vulnerabilities.
　At the same time, Japan is committed to energy transition. Among various approaches to energy transition, the bills are designed to support CCS and biofuel production outside Japan. As critical minerals are crucial for many clean energy technologies and face security challenges, the bills incorporate measures to support the recycling of critical minerals.

2. Diversification of sources and transportation routes of oil will be supported.

At the time of the attack on Iran by the US and Israel in February, 94% of Japan’s crude oil came from the Middle East, mostly if not all, through the Strait of Hormuz. To address this vulnerability, the Japanese Government has recognized that Japan must diversify both its sources of oil and its supply routes. But such diversification will incur additional costs, so commercial considerations alone cannot realize the necessary diversification.
　The bills will introduce a mechanism that will help cover the additional cost resulting from diversification. JOGMEC, an arm of the Japanese Government, will charge importers of crude oil and oil products predetermined fees. Importers of crude oil and oil products willing to engage in diversification will submit to METI a plan to diversify their sources or supply routes. Once the plan is authorized, JOGMEC will provide subsidies to the importers to offset the cost increase up to the freight difference.

3. Investment & guarantees for bypass pipelines will be made possible.

In response to the de facto closure of the Strait of Hormuz, bypass routes, such as the East-West Pipeline connecting Abqaiq and the port of Yanbu in Saudi Arabia and the pipeline connecting Habshan and the port of Fujairah in the UAE, have played an important role. There are plans to strengthen these bypass routes and to develop alternative routes that can be more resilient against future attacks.
　Japan recognizes the importance of strengthening the bypass pipelines to enhance the security of supply of crude oil and natural gas from the Gulf. With this recognition, Japan is willing to support the expansion and construction of such pipelines. The bill will enable JOGMEC to invest in such projects and provide guarantees to support the financing. With JOGMEC’s added function, Japan can engage in talks with the GCC countries to jointly enhance the security of supply of oil and gas from the region to Japan.
　In addition, apart from the latest bills, JOGMEC’s framework of investment and debt guarantee services were bolstered in April 2026 to support LNG liquefaction projects, such as those strategically located outside the Strait of Hormuz. Practical mechanisms were introduced to enable early capital recovery and flexible share buybacks to incentivize private Japanese companies to invest in such projects. Debt guarantee fees were reduced for projects with larger volume of LNG bound for Japan. The ceiling for JOGMEC’s investment percentage and the debt guarantee percentage was raised for strategically important projects.

4. Investment & guarantees for recycling of critical minerals will be made possible.

As Japan pursues energy transition, massive amounts of clean energy products, such as electric motors and batteries, will be needed. The production of such products requires a substantial supply of critical minerals. Unfortunately, Japan depends on a dominant supplier for most critical minerals.
　To ensure a stable supply of critical minerals, recycling of critical minerals in Japan is a very important policy. But recycling critical minerals is generally not very profitable and is subject to market fluctuations. Given the concern that there may not be sufficient investment in recycling, the bills will add a role for JOGMEC to invest in critical minerals recycling and to provide guarantees to support the financing of such businesses.

5. Investment & guarantees for overseas biofuel production will be made possible.

For decarbonization, electrification is very important. However, we cannot electrify all activities. Fuel will be necessary for transportation, and gas will be necessary for industrial activities. In the long term, hydrogen-based fuels and gas should play the primary role in this area. But costs must be reduced to realize the potential of hydrogen. Biofuels and biogas are expected to serve as a bridge to reduce CO2 emissions while efforts to lower the cost of hydrogen progress.
　In Japan, the potential of feedstocks for biofuel and biogas is modest. Japan will have to import the vast majority of biofuels and biogas from other countries. Such dependence may lead to vulnerability. To enhance the security of supply of biofuels and biogas, the realistic approach is to participate in their production overseas. To help Japanese players participate in such production, the bills will enable JOGMEC to invest in the production of biofuels and biogas and to provide guarantees to support the financing of such businesses. 

6. CfD for CCS will be supported by JOGMEC, a government entity.

CCS (Carbon Capture and Storage) is considered a very important approach to decarbonizing various activities, especially the hard-to-abate sectors, together with hydrogen and ammonia. But, just like hydrogen and ammonia, CCS is too expensive at this stage. For this reason, Japan will introduce a system called CfD (Contract for Difference) to offset the cost difference and promote CCS. A similar system has already been introduced for hydrogen and ammonia.
　The bill will expand the role of JOGMEC to administer the CfD activities for CCS. JOGMEC will build on its experience administering CfD for hydrogen and ammonia.

7. Remaining issues.

The bills are expected to help enhance energy security and to support energy transition. But the passage of the bills by the Diet is not enough. The details of the bills must be worked out through implementing rules. In particular, the degree of diversification can be controversial. Diversification of sources and routes of oil and gas will enhance energy security but will raise costs at the same time. Some of the cost differences will be offset, but not all of them. The funding for the offset will have to be collected through fees that will add to the costs of importing oil and oil products. The target percentage of diversification of the sources and transportation routes of oil and oil products in peacetime must be carefully considered.
　Budget funding is also necessary to back up the policies envisioned in the bill. The refineries in Japan are optimized to process crude oil from the Middle East. While mixing to a certain extent is possible, retrofitting the refineries will be necessary to process non-Middle East crude oil at scale. As the private sector will be reluctant to invest in retrofitting, budget funding will be needed to support the necessary investment. Budget funding will also be necessary to manage the CfD system. The details of the budget will be worked out by the end of this year, for approval by the Diet by the end of next March.
　Demand for biofuel, biogas, and recycled critical minerals must be developed as well. Policy measures, including incentives and regulations, will be important to develop such demand.
　The bills submitted to the Diet are important milestones. But more actions are absolutely necessary to strengthen energy security and to advance energy transition.

＜Notice＞
23rd IEEJ Webinar for the World
“IEEJ Outlook 2027”

Date & Time: Tuesday, 17 November 2026, 4:00-5:00 PM JST
 (3:00-4:00 PM SGT / 11:00 AM-12:00 PM GST / 7:00-8:00 AM GMT)

　The webinar will feature IEEJ’s first long-term global energy outlook since the Strait of Hormuz blockade. The outlook explores how far electrification can advance and how the role of fossil fuels is projected to change over the coming decades. The webinar will also discuss pathways to achieving the 2°C target from multiple angles, including an evaluation of the Nationally Determined Contributions (NDC 3.0) of G20 economies and the crucial roles of Carbon Dioxide Removal (CDR) and adaptation.