Tuesday

06-03-2025 Vol 1980

Japan’s LNG Development in Alaska: A Bargaining Tool Amidst Tariff Negotiations

Japan’s involvement in the development of liquefied natural gas (LNG) in Alaska has become a significant element in the ongoing tariff negotiations between Japan and the United States.

U.S. President Donald Trump has expressed his expectation that Japan and South Korea, along with other nations, will participate in this colossal project.

However, the financial implications are daunting, with estimates suggesting that the project will require over ¥6 trillion, leading many major trading and energy companies to question its potential profitability.

The Alaska Gasline Development Corporation (AGDC), responsible for the LNG project, plans to construct a roughly 1,300-kilometer pipeline that will transport natural gas from Northern Alaska’s gas fields to the Pacific coast in Southern Alaska.

From there, the gas will be exported globally, with a projected annualexport volume of 20 million tons to Asia.

At a summit in February, Japan committed to collaborating with the United States to enhance imports of U.S. LNG.

In March, during a speech to Congress, Trump noted Japan and South Korea’s interest in partnering with the U.S. on this major project.

By mid-May, Alaska Governor Mike Dunleavy revealed ongoing discussions with various stakeholders, including Japan and South Korea, showcasing the U.S.’s vigorous enthusiasm for the initiative.

An international LNG conference slated for early June in Alaska will see officials from Japan, South Korea, and Taiwan in attendance.

Trump is reportedly hoping for positive indications of participation in the project from these nations during this conference.

The project’s total estimated cost is around $44 billion (approximately ¥6 trillion), and if Asian countries participate as potential LNG importers, it will alleviate some of the financial pressure on the U.S.

Moreover, Trump emphasizes this development as a means of reducing the U.S. trade deficit.

While discussions about the Alaska LNG project have spanned over two decades within the energy sector, its emergence in current negotiations was sudden.

The project faces harsh environmental challenges; the northern region of Alaska adjacent to the ice-covered Arctic Ocean complicates direct gas exports from a port.

Constructing a pipeline is crucial as it allows the supply of LNG to southern urban areas through its route.

AGDC aims to commence production by 2031, although the pipeline’s construction involves crossing over 800 rivers and traversing three mountain ranges, including North America’s tallest peak, Mount Denali (or Mount McKinley).

A senior executive from a major trading company expressed skepticism about meeting the 2031 deadline for construction completion.

Recent inflation concerns have raised estimates, leading some to speculate that development costs could exceed ¥10 trillion.

Kenichi Hori, president of Mitsui & Co., Ltd., emphasized the importance of conducting a thorough evaluation of the project’s economic viability and long-term sustainability.

Given that LNG releases less carbon dioxide than oil when combusted, Japan views it as a practical fuel in its Strategic Energy Plan.

However, the supply of LNG is frequently subject to geopolitical risks.

For instance, production at the Arctic LNG 2 project in Russia, which includes Mitsui & Co. as a participant, has been paused due to economic sanctions imposed on Russia, resulting in an absence of LNG supply prospects for Japan.

To mitigate risks, major trading companies and energy firms are diversifying their investments throughout Southeast Asia, Australia, the Middle East, and North America.

Should the Alaska project become operational, LNG could reach Japan within about a week, potentially decreasing delivery times significantly.

Despite these advancements, concerns remain deep-rooted regarding the overall project feasibility.

A senior official in the energy sector cautioned that higher energy costs could burden consumers.

The Japanese government and associated businesses will need to address this critical issue judiciously.

image source from:https://japannews.yomiuri.co.jp/business/economy/20250527-256422/

Abigail Harper