IEEJ： April ©IEEJ 2024
Special Bulletin
A Japanese Perspective on the International Energy Landscape (682)March 26, 2024

Discussion on U.S. Natural Gas/LNG, Electrification, Japan-U.S. Cooperation
Ken Koyama, PhD
Chief Economist, Senior Managing Director
The Institute of Energy Economics, Japan
In Tokyo in the second half of the week before last and in Pittsburgh in the second half oflast week, I had opportunities to discuss the U.S. energy situation and policies, and Japan-U.S. energy
cooperation with people deeply involved in U.S. energy and climate change policies, energy industry
officials, and academic stakeholders. Among various topics that came to the forefront of discussion, I
here would like to comment on the following three: (1) natural gas and LNG, (2) progress in andresponse to electrification, and (3) challenges for Japan-U.S. energy and climate cooperation.
As for the first topic, I had talks in Pittsburgh with people involved in the upstream shale oiland gas business in North America. Then, it was interesting for me to feel their solid confidence in thefuture potential of the U.S. oil and gas business, although there are various relevant challenges. Amid
the global hype of scenarios in which global oil and gas demand will peak soon as efforts are enhanced
to achieve carbon neutrality, uncertainties about the future of the oil and gas business have risen tounprecedented levels. However, the realities of the international energy market after the outbreak of
the Ukraine crisis indicate a growing expectation that demand for fossil fuels will not decline so easily.
In such a situation, U.S. oil and natural gas production continues to expand, increasing theUnited States’ presence in the international energy market. U.S. oil production is among the mostimportant influences on the international oil market and crude oil prices. The other factors include
China's demand, production policy of the OPEC-plus group of oil-producing countries, andgeopolitical risks. With regard to gas, the expansion of U.S. gas production and LNG supply has
become the biggest influence on the global gas and LNG market, as growing U.S. LNG supply’s
pivotal role since the outbreak of the Ukraine crisis has been recognized. Apart from the impact of theLNG export licensing pause to be discussed below, it is certain that the significant expansion of U.S.
LNG supply supported by growing domestic gas production will continue in the foreseeable future.
I felt that businesspeople involved in the U.S. oil and gas business are becoming more
confident about their future under these circumstances. Given abundant U.S. oil and gas resources andtheir accumulated efforts and experiences, they seemed confident of their competitiveness, as well as
their survival and growth in the future business environment. It is difficult to predict what kind ofpolicies the next and subsequent U.S. administrations will implement, while constraints exist on thedevelopment of energy infrastructure including pipelines. Despite such uncertainties about the futurebusiness environment, I felt resilient U.S. confidence in the oil, gas, and LNG business. As energy
transition is promoted, demand is expected to grow for hydrogen, ammonia, e-methane, synthetic fuels,and other fuels derived from fossil fuels, as well as carbon capture and storage and other systems,
providing new business chances for oil and gas companies that are closely involved in these areas.
Regarding the LNG export licensing pause announced by the U.S. government recently, U.S.
LNG business operators positioned the measure as one of the political moves towards the presidential
1

IEEJ： April ©IEEJ 2024
elections and seemed concerned about the measure’s potential hindrance to LNG investment
promotion, a consequential decline in confidence in U.S. LNG, and a shift of interest to competing
LNG suppliers. The prospect of LNG demand growth, the need for new investment to cover a capacity
decline for existing LNG projects, and relevant hopes placed on U.S. LNG, as noted in an analysis by
the Institute of Energy Economics, Japan, resonated with U.S. LNG business operators who werehighly interested in growing LNG demand mainly in Asia.
On the second topic, we discussed the current status of the U.S. energy market in which theprogress of a new information revolution symbolized by the rapidly expanding use of generative
artificial intelligence and other technologies has led to a significant expansion of data centers as
infrastructure and a subsequent substantial increase in electricity demand. The rapid expansion of data
centers will increase not only the demand for electricity but also the importance of a stable power
supply. In this respect, the importance is growing of various initiatives, including the development of
infrastructure for so-called "uninterruptible power supplies."
As the importance of and expectations on energy storage systems increase, interest is
growing in nuclear power as a stable power source and in small modular reactors as a nuclear option.
In addition, expectations are growing on the enhancement of power supply networks to address theintermittency and uneven distribution of renewable energy supplies, at a time when renewable energy
is expanding significantly amid the promotion of the energy transition. In particular, it was extremelyinteresting to see the frequent presentation of the view that the expansion of the power grid would
accelerate in order to respond to the uneven distribution of renewable energy resources. Ahead ofJapan, the United States has addressed the acceleration of electricity demand amid the progress of thenew information revolution, faced new challenges for the stable supply of electricity, and tried tostrengthen the power grid. I feel that Japan will be forced to deal with these challenges in the future.
With regard to the acceleration of electrification and the subsequent promotion ofdecarbonization efforts, I was reminded of the voices pointing out the great effects and impacts of theU.S. Inflation Reduction Act (IRA) during talks in the United States. I felt that my U.S. discussion
partners were aware that the trend would be resilient and have to be addressed by the energy industry,
while whether this trend would be affected by the presidential election results is an important matterof concern. Regarding the promotion of the energy transition, a trend of enhancing economic security
to strengthen the national economy will grow amid the deepening division of the world.
On the importance of Japan-U.S. energy and climate cooperation as the third topic, weexchanged views from various viewpoints. Again, the keywords were "the deepening division of theworld" and "the importance of industrial policy." Potential Japan-U.S. cooperation related closely tothe two keywords includes the enhancement of cooperation and complementary relations between theU.S. IRA and Japan’s green transformation (GX) initiative. Since both the IRA and GX cover anextremely wide range of fields, there is a wide range of possibilities for Japan-U.S. cooperation.
However, I felt that the first important initiative would be to promote and strengthen the developmentof supply chains for clean energy under Japan-U.S. cooperation. While Japanese and U.S. companies
are expected to launch extremely competitive supply projects for hydrogen, ammonia, e-methane, etc.
under the IRA, while the GX is expected to develop markets and demand for these clean energy
sources through CfD to fill the price gap between the cost of clean energy products and competing
traditional energy sources. By combining the IRA and GX, the United States and Japan may realize
clean energy supply chain development. This will not only promote the two countries’ investment in
the clean energy sector and contribute to the promotion of the energy transition but also serve as thebasis and trigger of Japan-U.S. cooperation to promote the energy transition in Asia and the rest of the2

IEEJ： April ©IEEJ 2024
world. In an increasingly divided world, the promotion of U.S.-Japan cooperation in this area shouldbe emphasized as having strategic implications not only from the viewpoint of energy and climatechange but also from a broader geopolitical perspective. This point should be regarded as having
unchanging strategic importance, regardless of the outcome of the U.S. presidential election.

Contact: report@tky.ieej.or.jp
The back issues are available at the following URL.
http://eneken.ieej.or.jp/en/special_bulletin.html

3