Australia–Japan energy partnership needs a shared story
In September 2024, the Australian government released its updated National Hydrogen Strategy, positioning Australia as a ‘renewable superpower’ with ambitions to produce hydrogen and green iron at world-leading cost. In March 2025, a senior Japanese utility executive warned that Australia’s standing as a preferred liquefied natural gas (LNG) supplier was at risk from rising costs and regulatory uncertainty.
These two signals expose a fundamental disconnect — Australia seeks early Japanese backing for untested green-commodity projects while Japanese trust in the established LNG trade is fraying. Tokyo and Canberra must now search for a single story investors will believe — one that makes early commitments a durable source of value. A shared narrative is not political decoration. It is an economic instrument that lowers the policy, legal and standards risks attached to assets that must operate for decades.
What appears as two debates is in fact one problem — a gap in how each side frames the partnership in the transition era. From Australia’s viewpoint, Japan’s energy policy looks hesitant, with decarbonisation targets that leave room for redirecting imported LNG to Southeast Asia rather than cutting domestic use. From Japan’s perspective, Australia’s shifts on approvals, resource taxation and long-term gas strategy raise doubts about the stability of rules governing multi-billion-dollar assets. Japan waits for certainty, while Australia counts the cost of delay.
In green commodities, Japan plays for time — and for good reason. Building large-scale hydrogen, ammonia or green-iron capacity demands vast, irreversible fixed costs. Commit too early, and a shift in policy or counterpart priorities could strand the asset before it pays back. To guard against that trap, Japan moves in small, staged projects with its S+3E doctrine — safety, energy security, economic efficiency and environment — which links domestic targets to regional decarbonisation and preserves LNG as a security backstop. This approach prizes fuel optionality and influence over emerging standards, making early commitments rare unless they secure non-replicable value.
For Australia, this caution shows up as the opportunity cost of delay. Each year without Japanese anchors is a year not fully invested in scaling production, forfeiting compounding first-mover advantages in market share, infrastructure influence and standards-setting power. Japan’s policy can also be read as locking in overseas dependence on gas. Australia may see this as reluctance to commit, raising doubts about reliability that both sides claim to want to dispel.
LNG turns the risk calculus on its head. Japan has already sunk the cost of import terminals and gas-fired plants, so those assets will run as long as they cover variable costs. This gives Japan the freedom to demand flexibility from suppliers and seek diversification, with contracts spanning the United States and Middle East. In turn, Australia must guarantee long-term supply certainty while Japan keeps its own exit routes open. Compounding the asymmetry, Japan’s vast investments in Australian LNG projects remain exposed to policy instability — including the Safeguard Mechanism — that Japan as a buyer can circumvent.
The result is a pair of mirror risks and grievances. Japan worries that if it locks into a green-commodity contract, Australia might later argue for changes on the strength of its cost advantage — just as Japan hears now over LNG. Australia reads Japan’s caution as a preview of protracted bargaining in any future green supply deal, even if the economics already favour Australia. Both interpretations are politically understandable, even if each side dismisses the other’s logic as misplaced. Together, they reinforce a stable but suboptimal equilibrium — neither side moves first, capital moves elsewhere and the first-mover advantages slip away.
Alignment must resolve the disconnect that drives each side to look elsewhere. It must show that early Japanese commitments secure enduring commercial value and standards influence, whereas Australian guarantees provide the policy and fiscal stability needed to underwrite multi-decade supply. LNG and green commodities must be linked under one partnership logic — both test whether each side’s institutions can deliver long-term certainty are judged by investors as part of the same sovereign-risk profile.
Domestic politics will test any message. Australian critics will argue that durable advantages for foreign buyers amount to selling assets cheap. Japanese sceptics will describe anchor positions as concentrated risk. The practical reply is symmetrical — without trusted anchors, projects do not proceed. Anchor rights buy insurance against shocks and secure standards influence that dispersed portfolios cannot deliver.
The Australia–Japan partnership, formalised through frameworks like the NARA Treaty whose 50th anniversary arrives in 2026, has anchored regional energy security for decades. That anniversary offers a moment to state shared purpose and instruct officials to apply it consistently by stabilising approvals and fiscal settings, harmonising certification standards and designing a framework of reciprocal commitments.
Geology delivered the first half-century of Australia–Japan energy trade. Cheaper clean molecules will not deliver the next half-century. Only a coherent story will turn lower costs into lower risk and convert proposals into plants and ports that withstand scrutiny. If that story is told clearly and enacted consistently, both countries will bank durable value from early commitments. If not, capital will follow the safer narrative, regardless of what cost curves say.
Hiroshi Matsushima is Research Fellow at the Crawford School of Public Policy, The Australian National University.