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Japan divests some coal but still needs fossil fuels – analysts

Japan’s Mitsui says it is seeking to optimise its coking coal portfolio as it mulls the sale of its Queensland coal assets and seeks to ramp up investments in clean energy sources. However, analysts said that while Japanese companies wanted to reduce their exposure to coal, the country faced a crippling energy shortage, exacerbated by the war in Ukraine and would still need Australian fossil fuels in the medium term.

Japanese companies have been scaling back investments in coal since former Prime Minister Suga Yoshihide in 2020 pledged to reach net zero emissions by 2050. Bloomberg

Mitsui has started sounding out suitors for its 20 per cent stake in Queensland’s South Walker Creek and Poitrel mines, sources told The Australian Financial Review. A Mitsui spokeswoman said on Monday the company would not comment on specific mines. “Regarding coking coal, while filling our responsibility as a supplier, we will optimise our portfolio in consideration of strategy, business environment, economics, and other factors,” she said. However, sources said the company was keen to reduce its exposure to coal as long as it could still meet Japan’s energy needs. Mitsui announced last month it was increasing its stake in Australian forestry company New Forests to 49 per cent from 23 per cent previously.

Other companies in Japan, where land is scarce, are also investing in timber assets with Sumitomo Corp planning to double the area of forests it manages in New Zealand to about 100,000 hectares, Japanese broadcaster NHK reported on Monday.

Mitsui was the first Japanese company to invest in Australian coal in the 1960s and owned South Walker Creek and Poitrel under a long-standing partnership with BHP, until BHP sold its 80 per cent stake in the mines to Stanmore Coal earlier this year. Mitsui’s desire to sell the Queensland assets comes after it sold a 10 per cent stake in the NSW Bengalla mine to New Hope Coal in 2019.

Australia provides around two-thirds of Japan’s coal, and a third of Japan’s LNG imports. Japan is seeking to slash its reliance on fossil fuels to achieve the government’s net zero emissions target by 2050. However, analysts said Japanese investors would not abandon Australian coal at a time when the country’s energy shortages had been amplified by the Ukraine invasion and restrictions on importing Russian gas and coal.

“Japanese companies will want to purchase additional LNG and coal from Australia if the Ukraine crisis persists in the future,” Reiji Ogino, an energy analyst for Mitsubishi UFJ Morgan Stanley Securities Co, said. “In order to achieve carbon neutrality, Japan will have to rely on hydrogen and ammonia, but to make it actually commercially feasible, we will need to collaborate with countries with large land areas, such as Australia and Middle Eastern countries. Japan cannot afford to go it alone.”

Japan’s sanctions on Russia following the Ukraine invasion have exacerbated the fragility of the country’s energy supplies, which rely heavily on Australian imports, at a time when the government is also prioritising the switch to green energy sources.

Syusaku Nishikawa, an analyst at Daiwa Securities, said Australia would be one country Japan would turn to as electricity providers looked for alternative supply on the spot market when LNG supply from the Sakhalin 2 project in Russia stopped. That project accounts for around three per cent of the electricity generated in Japan. “This won’t happen anytime soon but when they start looking for alternative sources in place of LNG from Sakhalin 2, then Australia may benefit,” Mr Nishikawa said.

Japanese companies have been scaling back investments in coal since former Prime Minister Suga Yoshihide in 2020 pledged to reach net zero emissions by 2050. However, Japan has refused to phase out coal completely and expects coal to make up 19 per cent of its energy mix in fiscal 2030, down from 32 per cent in 2019. Japan also wants LNG to account for 20 per cent of its total energy mix by 2030 compared to 37 per cent in 2019.

https://www.afr.com/world/asia/japan-divests-some-coal-but-still-needs-fossil-fuels-analysts-20220620-p5av3f

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