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HomeQatar TimesCan Qatar and Japan's LNG 'marriage' survive shifting market dynamics?

Can Qatar and Japan’s LNG ‘marriage’ survive shifting market dynamics?

Qatar and Japan have one of the most important relationships in the world of liquified natural gas (LNG).

Energy security has come under the global spotlight in recent months as tensions between long-term rivals Russia and Ukraine continue to mount.

Whilst attempting to increase security in Kyiv due to concerns over a possible invasion by Moscow, the US has found itself at a crossroad—between its concern over potential escalations and protecting Europe’s fragile gas supply.

In a scramble to secure Europe’s energy supply, the Joe Biden administration has been reaching out to key LNG producers including Qatar, South Korea, Japan and Algeria. Inside the map of mega LNG producing countries, however, stands an apparent divide between two key producers: Qatar and Japan.

In November last year, Japan’s largest power generation company, JERA, decided to not renew a 25-year contract with Qatar, under which the latter provided 5.5 million mt/year (metric tonne per year) of LNG.

The Japanese company’s chief, Satoshi Onoda, attributed the decision to JERA’s inability to extend large contracts at the time “due to developments in the global LNG markets”.

Qatar says it cannot fill Europe’s gas supply alone amid Russia-Ukraine tensions

“We had no choice but to give it up this time because there was a mismatch in conditions between the Qatari side and what we had requested,” Onoda said, noting that the company did not want to give up similar contracts.

Despite this, the decision was a blow to what experts describe as “one of the most important relationships in the LNG world”.

“The Qatar-Japan ‘marriage’ is one of the most important relationships in the LNG world, with a long and interesting history dating back many years,” Susan Sakmar, Visiting Assistant Law Professor at the University of Houston Law Centre, told Doha News.

Whilst Japanese officials assured that the end of the long-term contract would not impact Tokyo’s ties with Doha, recent reports suggest the contrary.

Japanese media outlet, Nikkei Views, recently quoted a Qatari official saying: “just wait until the next crisis. Where will you get your LNG from?”

“I don’t even want to go to Tokyo,” added the Qatari official, who was not named by the news website, referring to the place where JERA is headquartered.

On the other hand however, JERA’s decision is reported to have angered Japanese officials.

“We know we can’t blame business decisions by private companies for bilateral relations, but wasn’t there a cleaner way to make a break?” asked a Japanese government official at the Ministry of Economy, Trade and Industry (METI).

The internal frustration in Japan towards JERA’s handling of the contract with Qatar could be justified by the two countries’ deep history in the energy sector.

It is worth noting that Japan received Qatar’s first shipment of LNG in 1997. Since then, more than 3,0000 deliveries have been shipped.

The Gulf state supplies Japan with an average of 7.2 million tonnes of gas per year. Since the termination of the contract in December 2021 however, the number has dropped to under 2 million tonnes.

Qatar rose as a reliable energy partner during the 2011 Fukushima nuclear disaster. At the time, the Asian country needed LNG to make up for the damage its entire nuclear power generators sustained.

Doha supplied Tokyo with up to 17 million tonnes, the equivalent of around 20% of Japan’s total imports in 2013.

“JERA’s decision to not extend the 25-year contract with Qatar has business and geopolitical implications and certainly puts a strain on what has been a mutually beneficial relationship,” said Sakmar, author of “Energy for the 21st Century”.

The professor added that Japan has also been trying to reduce its dependency on imports and restart its nuclear facilities to meet shifting market dynamics, further stating that another possible cause would be the cost of long-term contracts and a lack of flexibility.

“There’s some indication the market will be oversupplied from 2026-2031, so it could be Japan is just holding out for better prices,” said Sakmar.

Qatar secured major contracts last year with Japanese companies for its North Field project. The $28.7 billion expansion project is the largest of its kind in the world.

The main engineering and construction contract for the first phase of its expansion was given to a joint venture of Japan’s Chiyoda Corp. and Technip.

“In the end, I think the honeymoon is over between Qatar and Japan, but that does not mean the relationship is over – it is just evolving to meet new market dynamics.”

US turns to Qatar

US President Joe Biden has approached Qatar in recent months to provide Europe with gas shipments in the event of a Russian invasion of Ukraine.

Biden designates Qatar as major non-NATO ally

The move did not come as a surprise, given Qatar’s position as a strategic ally and leading LNG exporter. Energy supplies were discussed during the meeting in Washington in January, between Qatar’s Amir Sheikh Tamim bin Hamad Al Thani and the US President.

But the visit seemed to have disappointed Japanese officials—the chagrin was directed towards the Biden administration.

When Japanese Prime Minister Fumio Kishida assumed his position last October, he sought a meeting with the White House. The meeting ended up being virtual, as President Biden reportedly had other domestic duties to attend to. 

As Sheikh Tamim and President Biden met, a Japanese government official reportedly said: “After all that effort we put in,” indicating their hopes to be favourites with the US on energy related matters. 

Similar to Qatar, Japan is also a key US ally, with nearly 55,000 American military personnel in 85 facilities across the Asian country. Tokyo also receives over 90% of its defence imports from the US.

Analysts believe that the alleged reaction from the Japanese official was towards the Biden administration, maintaining that the high-profile Japan-US meeting deserved more consideration.

“It may not be a question of Biden picking Qatar over Japan so much as Qatar having more to offer to US foreign policy interests at this specific point in time than Japan,” Dr. Kristian Ulrichsen, a Middle East fellow at Rice University’s Baker Institute for Public Policy, told Doha News.

Qatar-US ties strengthened last year following the Taliban’s takeover of Kabul. At the time, Doha facilitated history’s largest airlift of people, evacuating up to 70,000 Afghans and foreigners.

The Gulf state had agreed to relocate the US embassy from Kabul to Doha as the events unfolded, later signing a deal with Washington to represent US interest in Afghanistan.

This was followed by president Biden’s decision to designate Qatar as a major non-NATO ally (MNNA).

Dr. Andreas Krieg, assistant professor at the School of Security Studies at King’s College London, believes that Qatar’s role as a leading LNG producer will further elevate the Gulf state’s role as a broker.

“We’ve always spoken about Qatar as a soft power broker to mend ties and to mediate between conflicting parties, but LNG itself is an immense source of soft power that Qatar has never really used as such, at least not as visibly at the moment,” noted Dr. Krieg.

As LNG marketplace dynamics remain shifting—yet to settle, the jury on Qatar and Japan’s break is still out.

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