Papua New Guinea can feed Japan’s energy appetite
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Papua New Guinea can feed Japan’s energy appetite

Originally published in the East Asia Forum.


Japan faces significant energy security hurdles over the next few decades. Energy shortfalls loom with the planned phase-out of inefficient coal power plants by 2030, losses of supply from terminating the Qatar Liquefied Natural Gas (LNG) contract and uncertainties in the tight LNG market — particularly in the wake of Russia’s invasion of Ukraine. But a helping hand has been offered by Papua New Guinea (PNG).

Japan is a big energy consumer and the largest LNG buyer in the world. A steady supply of fuel is needed to maintain the world’s third largest economy and underpin its COVID-19 recovery. Currently, Japan is one of PNG’s largest export markets but PNG supplies less than 5 per cent of Japanese LNG products.

During a visit to Japan in late September 2022, PNG Prime Minister James Marape saw a win-win opportunity. He offered Japanese Prime Minister Fumio Kishida favoured access to PNG’s new gas field developments. This is in addition to JX Nippon Oil & Gas Exploration Corporation’s pre-existing 4.7 per cent share in the current PNG LNG project.

Marape needs LNG investors to advance energy sector-led growth and Kishida needs to boost Japan’s energy security. A spokesperson for the Japanese government noted that Japanese companies would be interested in joining projects as an equity partner to secure LNG exports. Future arrangements between Japan and PNG are likely to be commercially driven.

PNG is a tough operating environment with political unrest and community disputes affecting the energy sector. The current US$19 billion PNG LNG project is led by ExxonMobil and has been in operation since 2014. It has successfully managed volatile PNG politics and the nationalist inclinations of the Marape government, which aim to reap more benefits from energy and mineral projects. Future LNG developments may be affected by PNG landowners calling for greater benefit flows. PNG’s LNG project contributes significantly to its GDP — about 5.25 per cent in 2019 — but little trickles down to the people.

Future investors will have to consider these risks, but PNG LNG projects are still being managed by world class and experienced multinationals including ExxonMobil and Santos. Low production costs ‘make PNG a winner in the global LNG race’.

PNG is reeling from the hard economic hits of COVID-19 and high public debt levels and needs investment in the resource sector to power its recovery. One of its first stops is Japan, a trusted development partner. The offer and terms have yet to be locked down and will be done by Japanese businesses, not government. But assuming there are no unexpected PNG resource sector policy twists, the project represents a sound investment with decades of LNG reserves becoming available.

PNG LNG projects have the advantage of close proximity to Japanese markets and Japanese business experience of the operating environment. Two large new projects are being developed. The current PNG LNG project plans to expand operations under its proposed P’nyang development. French multinational TotalEnergies is moving forward with developing the Elk and Antelope fields in the Gulf province under the PNG LNG project. The latter project is expected to double LNG production.

Keeping good relations with PNG makes diplomatic and economic sense. It is consistent with Japan’s Strategic Energy Plan objective of ensuring stable supplies and diversifying low carbon-intensive fuel sources as it moves towards carbon neutrality. Securing a stake in PNG LNG projects is also consistent with Japan’s geopolitical interests. It has long and deep ties in PNG and is the second largest bilateral donor to PNG after Australia, with commercial and government investments already in the energy and construction sectors.

Japan is keeping a wary eye on Chinese investments in the region. There has been increased Chinese investment in PNG — both private and government — with about 15 per cent in the energy sector. China plans to buy the greatest share of PNG LNG. It is the largest bilateral concessional lender to the region according to the 2022 Lowy Institute Pacific Aid Map. Chinese aid and loans have dipped recently — partly due to a lack of bankable projects and partly due to concerns about investment risks and returns — but a few large and strategic investments could change the calculus.

PNG has made clear it wants Japan to invest in its LNG. At his last meeting with Kishida, Marape assured him that Japan would be given priority in developing any additional gas fields. That could be music to Kishida’s ears considering Japan’s energy security concerns. If Japanese businesses don’t take the offer up, Marape will have to find other investors — the PNG economy needs LNG projects and the economic growth they bring.

Japan is making sound progress toward decarbonising its power sector, but the transition phase will likely require access to more LNG supplies. The PNG offer comes with some commercial risks but has significant potential for both sides. It presents an attractive opportunity for energy hungry Japan.


Areas of expertise: Pacific Islands development and security, resource management, human security and resilience.