Climate Betrayal: how backroom deals with Japan locked Australia in for decades of gas

Despite the Australian public voting for the need to address climate change, the Labor government has backed in decades of future gas exports. Rex Patrick and Philip Dorling investigate the climate action betrayal ahead of a secret AAT meeting this week.

The International Energy Agency forcefully states that the pathway to net zero by 2050 is a very narrow one and requires that no new oil and gas fields get approved.

And yet, despite the Australian public voting for Labor’s pledge to aggressively reduce emissions, on the day after he was sworn in as Australia’s 31st Prime Minister, Albanese was at Kantei in Tokyo making a contrary pledge of “better energy security” for Japan.

Recent Freedom of Information (FOI) releases, and close examination of a mosaic of evidence, have shed new light on who’s been convincing the Government to back away from turning off the gas tap. 

It’s not just gas companies pressing to keep their profits flowing. It turns out Japan is playing hardball with the Government.

Japan’s energy security and INPEX

Japan has the fourth largest economy in the world. But it’s also a country with very low energy self-sufficiency. Japan is highly reliant on imports to meet its energy needs. 

In 2022, 43% of the LNG and 66% of coal that feed the Japanese economy came from Australia. Despite significant use of nuclear energy, Japan has a mammoth carbon fuel addiction, and Australia is a leading supplier.  

As part of Japan’s energy security policy, the Japanese Government founded the state-owned company INPEX with a mandate to contribute to Japan’s energy security. The company was floated on the Tokyo Stock Exchange twenty years ago, but the Government maintains a 22% share of the company but also maintains a ‘golden share’ to prevent a hostile takeover. 

Current INPEX President and CEO, Mr Udea Takayuki (Ueda-san), has served in the Japanese Ministry of International Trade since 1980 and went on to become the Vice Minister for International Affairs in 2015 before taking a Vice President role at INPEX in 2017. 

When Ueda-san speaks on gas, he does so as a proxy of the Japanese Government. In sworn testimony in an Administrative Appeal Tribunal (AAT) Hearing earlier this month, a DFAT official responsible for worldwide engagement on international energy trade and energy security matters, Mr Warren Hauck, gave evidence that Japanese gas companies and the government “are one and the same”.

Ichthys

INPEX is a key player in Australia’s Liquid Natural Gas (LNG) production and export industry. 

Its Ichthys project alone accounts for 10% or Japan’s LNG imports. The project involves tapping into the Ichthys field to the north of Western Australia and piping the gas 890 km to an onshore processing facility in Darwin, from where LNG vessels ship the final product to Japan. 

The project has been in production since 2018 and has a 40-year estimated life.

INPEX announced in August 2022 that it is investigating reducing the project’s carbon emissions by sequestering it’s CO2 by-product underneath the Bonaparte Basin.

But INPEX’s tentacles reach much further than Ichthys.

It also has a 47% stake in the Santos-operated Coniston, Van Gogh and Novara oil fields, a 17.5 % stake in the Shell-operated Prelude FLNG facility and an 11% interest in Santos’ Bayu-Undan gas field off the coast of Timor Leste and its Darwin LNG facility. 

Election win and a risk to Japan

When Australian Labor won Government, Japanese energy officials fretted about its promise to hit an emissions target of 43 per cent below 2005 levels by 2030 and net zero by 2050.

Executed properly, any plan to hit these targets would throw a spanner in the works of projects like Ichthys and Barossa (below), which in turn would raise concerns about Japan’s energy security.

When Russia invaded Ukraine on 24 February 2022 Japan responded immediately by doubling down on its long-standing relationships with its leading oil suppliers, the United Arab Emirates and Saudi Arabia. It now had to deal with the risk posed by its leading LNG supplier’s new Government.

They moved quickly.

Early advocacy

Anthony Albanese’s official diary shows that Udea-san and then Northern Territory Chief Minister Natasha Fyles met with the new Prime Minister on 16 June 2022, a little more than two weeks after the government took office and well before most prominent Australian business leaders.

Earlier that day, Chief Minister Fyles also called on Climate Change and Energy Minister Chris Bowen, and it’s likely Ueda-san was present at that meeting as well. But at this stage, the Japanese campaign was still in its infancy. 

Less than a month later, on 13 July 2022, Climate Change and Energy Minister Chris Bowen met with the outgoing Japanese Minister for Minister of Economy, Trade and Industry, Mr Kōichi Hagiudaas, at an informal meeting of the Quad Energy Ministers on the sidelines of the Sydney Energy Forum. 

But the more important event for Japanese diplomacy was the one-on-one breakfast earlier that morning. 

INPEX and Japanese ministers were not alone in their campaign. Santos was engaging the Government, too. They’d had their first post-election meeting with Government Officials on 2 June 2022, the day after Albanese’s full ministry was sworn in. 

They had a particular focus on their Barossa project.

Barossa project

The Barossa project is key to the future profits of Santos. The project involves piping gas from the Barossa field north of Darwin for onshore processing. Its output is intended for export to Asia.

Japan wants a good piece of that export LNG. Unsurprisingly, Barossa is 12% owned by Jera, another Japanese company partly owned by the Japanese Government.  

In terms of carbon emissions, Barossa is the dirtiest of projects. Some experts have described it as a carbon emission project with LNG as a by-product. To deal with this, the company intends to bury the unwanted CO2 output in the now commercially depleted Bayu-Udan gas field in Timor-Leste waters. 

When Labor arrived in Government, the project was restricted from dealing with its CO2 emission by Australian law, which prevented sea dumping across international boundaries.

Santos had been working on this in its advocacy for the Government. FOI releases show that official briefings on Barossa were floating around ministers’ offices very early in the piece.

Open climate change developments in 2022

In contrast to the gas advocacy that was taking place in secret, Labor moved quickly and openly on progressing climate change.

In June 2022, the Government formally communicated their emission reduction targets to the United Nations Climate Change Conference. In July 2022, they introduced the Climate Change Bill into the Parliament, which passed into law in early September.

In August 2022, the Government opened up a month-long consultation into its key climate change policy, an amendment to the existing ‘safeguard mechanism’ to place a requirement on large emitters to reduce their emission baselines each year so that the nation’s targets could be met.

Companies that emitted less than their set baselines were to be given credits that they could sell. Companies that emitted more than their baseline had to offset their excess emissions by purchasing or surrendering credits.

Rex Patrick on Labor’s Safeguard Bill: bigger holes than the Ozone but not beyond repair

By November 2022, after an exposure draft had been released to garner input from stakeholders, a Bill was introduced into the Parliament.

In December, the focus shifted to high energy prices with the Government putting a $12 price cap on gas, introducing a mandatory code of conduct on gas companies negotiating gas supplies with customers and adjusting the Australian Domestic Gas Security Mechanism (ADGSM) to allow gas exports to stopped more easily in the event of local shortfalls in supply.

The latter swiftly drew the attention of Japanese energy companies and the Japanese Government.

Ongoing advocacy

INPEX made public submissions to both the safeguard mechanism consultation and to the draft exposure of legislation. They wanted the whole thing to slow down. From their selfish perspective, there was no reason to rush.

In October 2022, Australia’s Trade Minister, Don Farrell and Australian Assistant Minister for Trade, Senator Tim Ayres, met with the new Japanese Minister of Economy, Trade and Industry, Yasutoshi Nishimura, as part of the Japan-Australia Ministerial Economic Dialogue. It’s an annual meeting that befits Japan’s status as Australia’s second-largest trading partner. 

LNG, a $39B export in FY2022, was a topic and made it into the joint statement that flowed from the meeting. “Ministers also recognised the continuing importance of the world’s liquefied natural gas market as well as investment in this sector for global energy security.”

As part of Farrell’s diplomacy, he quietly awarded the title of Honorary Officer in the General Division of the Order of Australia to former INPEX Chairman Kitamura. That sort of recognition goes down well in Japan. According to Farrell, Kitamura was “very moved by that presentation.”

In December 2022, Deputy Prime Minister Richard Marles and Foreign Minister Penny Wong met in Tokyo for the tenth Japan Foreign and Defence Ministerial Consultations to discuss and publicly affirm a common strategic aim, including free trade between the two.

When Wong announced the appointment of a new Australian Ambassador to Japan three days before Christmas 2022, she again made reference to the strong commercial relationship between the two countries, pointing out that it was our second largest export market. 

Explosive diplomacy

As the new year progressed and the Safeguard Mechanism debate was brought on for debate in the Australian Parliament, frustration grew in the Japanese camp, leading to an extraordinary set of events inside Parliament House on 30 March 2023.

On that Thursday morning, while the new Safeguard legislation was being debated in the Senate, INPEX CEO Ueda-san made calls on ministers inside Parliament House before attending a private function hosted by Resources Minister Madeline King.

Aside from King, Ueda-san called on Foreign Minister Penny Wong and Trade Minister Farrell.  

According to Farrell’s later account, he gave assurances to Ueda-san “that we continue to be, and we will be a reliable supplier of energy to our friends and neighbours in this region and across the world”.

Just half an hour later, however, Ueda-san dropped a bombshell. 

The bombshell threats

In a carefully scripted but extraordinary speech at Minister King’s function, the INPEX CEO said Japan had been rattled by government interventions in Australia’s gas industry.  

Along with Japanese ambassador Shingo Yamagami, Ueda said that Tokyo was worried about potential ripples that could jeopardise its own energy security. There was also the question of further investment in LNG projects, including INPEX’s flagship Ichthys development. 

Warning of what he claimed to be a “deteriorating” investment climate in Australia, Ueda said the Labor Government risked unintended consequences from intervention in gas markets. “On the geopolitical front, Australia’s ‘quiet quitting’ of the LNG business has potentially very sinister consequences. … Alarmingly, the ‘inconvenient truth’ is most likely that Russia, China and Iran fill the void.”

This was an extraordinary claim, but Ueda wasn’t holding back in his effort to browbeat the Australian Government.  

With a keen sense of what makes a headline, he asserted that any further shifts in Australian energy policy “would represent a direct threat to the rules-based international order essential to the peace, stability and prosperity of the region, if not the world.”

Ambassador Yamagami, who had a talent for calculated outspokenness, also fuelled the flames, declaring, “It’s hard to imagine the neon lights of Tokyo ever going out, but … this is exactly what would happen if Australia stopped producing energy resources.”

A gobsmacked Resources Minister King meekly thanked Ueda-san for his remarks and affirmed that “Australia will always remain a reliable supplier of energy to Japan and a safe destination for foreign investment.”  

However, the Japanese hadn’t quite finished. Ueda’s speech was quickly disseminated by the Japanese Embassy, and Coalition Opposition foreign affairs spokesman Simon Birmingham quoted the INPEX CEO extensively in Senate Question Time a little more than an hour later.  

Farrell understood full well what had happened. He later told the Senate:

“I had had a meeting with the person who gave that speech only an hour before. I … gave them an assurance that we will continue to be a reliable supplier. INPEX is a fantastic company. …  I was surprised by the comments they made, given the assurances that I had given them only an hour before. I suspect the speech was already written. It may have already been given to the Opposition so they could ask some questions in question time.”  

The Safeguard amendments passed through the Senate later that day. This was a political and policy success for Labor, but thanks to INPEX CEO Ueda-san and Ambassador Yamagami, there were strong headlines about Japan’s concerns, largely uncritically reported, and much commentary that the Labor Government was mismanaging a key strategic relationship.  

For the Japanese, the purpose of this exercise was to make it absolutely clear to the Labor Government that further intervention in Australia’s gas markets would be a serious issue, not only in terms of Japanese investment decisions but also in the wider Japanese-Australian relationship.

There was more than an element of bluff in this as the energy-dependent Japanese were well understood, but they knew how to play the political and media game in Canberra, and they did so with Samurai ruthlessness.  

And just in case the Government hadn’t got the message, Ueda-san reiterated his comments in the Australian Financial Review a month later.

Sea Dumping Bill

At the same time the INPEX CEO was throwing diplomatic hand grenades, Santos was engaging in a private war with Minister Bowen. Santos’ CEO, Kevin Gallagher, had called Bowen and followed up in writing, expressing his anger at the Safeguard Mechanism amendments.

“As discussed,” he wrote, “Santos and our Japanese and Korean joint venture partners, JERA and KS E&S, could not accept net zero reservoir emissions from day one of production from the Barossa Gas Project. The earliest this could be committed to would be 2030, to allow time for Santos to develop a [Carbon Capture Storage] option.”

He threatened that Barossa would not go ahead if the mechanism went ahead in its current form. 

He expressed the need to urgently introduce the Sea Dumping Bill that would allow them to export CO2 to Bayu-Udan.

Carbon Captured: Santos emails reveal gas giant orchestrated “Environment Protection” laws

Not Happy Jan San

The Japanese were not happy and were determined to keep up the pressure.  

In June 2023, Japan’s Economy Minister, Yasutoshi Nishimura, told a Tokyo media conference that further Australian Government intervention in markets could have “extremely significant impact on our country’s LNG business in Australia”.

In a July article in the New York Times, the Director-General of Natural Resources and Fuel in Japan’s Ministry of Economy, Trade and Industry, Juki Sadamitsi, commented on Australian policies on LNG production: “If this issue cannot be resolved, this might undermine long-trusted relations”.

It is clear from an affidavit filed by DFAT Official Warren Hauck that the Australian Government took note of these comments.

Damage control

The Albanese Government had no ticker for a diplomatic brawl with Tokyo. They were busy building Australia’s military ties with Japan as part of the strategy to contain an increasingly assertive China. They were also acutely sensitive to any suggestion from the Coalition or the media that Labor could not be trusted to successfully manage key international relationships.  

So faced with Japan’s sudden and very calculated diplomatic offensive, the Albanese Government slid into a cycle of diplomatic explanation, consultation and damage control, repeatedly reaffirming their commitment as a reliable energy supplier which, in effect, was code for forewarning further intervention in gas markets or anything that might raise concerns about the cost and reliability of LNG supplies to Japan. 

• In May 2023, at a G7 side meeting, the Australian and Japanese Prime Ministers met in Tokyo. Albanese underscored Australia’s commitment to remaining a reliable supplier of energy to Japan as both economies transition to net zero.
• In August 2023, Minister Farrell met with Japanese Minister Economic Revitalisation Minister Shigeyuki Goto in Melbourne and again underlined the Government’s reassurances. 
• In September 2023, Albanese and Japanese Prime Minister Fumio Kishida met and publicly “reiterated the importance of Japan-Australia cooperation in the resources and energy, and confirmed that both countries will continue to engage in close dialogues.”  
• In early October 2023, a further meeting took place between Ministers Farrell, Bowen and King and the Japanese Minister of Economy, Trade and Industry, Nishimura Yasutoshi, that produced a joint statement that reaffirmed

“Australia has committed to remaining a reliable supplier of resources and energy to Japan and the region now and into the future. This applies to traditional energy commodities such as coal and liquefied natural gas … They noted the importance of LNG along with renewables and energy storage technologies in the energy transition.  Ministers discussed the Safeguard Mechanism. They agreed to move forward, together. They noted officials’ discussion on its implementation. …”

• In late October 2023, Prime Ministers Albanese and Kishida met again and issued a joint communique that, among other things, “reaffirmed the critical importance of enhancing energy security cooperation, including through secure and reliable energy resources trade and investment, such as in liquefied natural gas (LNG).”

Evidence provided to the AAT by DFAT’s Warren Hauck earlier this month confirmed a lot of other activity was taking place behind the scenes. 

Undersea CCS debate: don’t mention the Japanese

By the time the Sea Dumping Bill reached the point of debate in the Senate in November, the Japanese had completely established their authority and status, and the Albanese Government was bending over backwards to offer reassurance that what Tokyo wanted, Tokyo would get. But the Government didn’t want to admit that, even when they were pushing ahead with legislative action.

Questioned by the Australian Greens whether the legislation was intended to facilitate the Bayu-Undan CCS project, Labor ministers were evasive, insisting that the legislation was routine and uncontroversial. 

There was a blanket refusal to confirm any Japanese lobbying or pressure. “It’s a policy reform that’s been going on for some time”, Assistant Climate Change and Energy Minister Jenny McAllister told the Senate in a debate that for the government resembled a Fawlty Towers episode. Don’t mention Japan!

The Bill passed the Senate on 13 November 23, although Minister Wong laid the truth to bear in the final moments of debate. 

Clearly tired from a week of international travel, and frustrated at the Liberals for delaying the Bill’s passage through the Senate, she shouted at Senator Birmingham:

… do you know what you’ve been doing? You said no to Santos. You then said no to Woodside. You’ve said no to INPEX. You’ve said no to Korea. You said no to Japan!

Wong hadn’t got the non-disclosure memo.

Santos has since been helping the Department of Climate Change, Energy, the Environment and Water draft the permit application forms that will be used by Santos to secure approval for the Bayu-Undan CCS project. And with that, there’ll be a green light for a further expansion of gas production in northern Australia.

Proceeding on a pipe dream

The International Energy Agency’s edict of no new gas projects has been ignored by the Government.

The Government is also ignoring another key fact: that Carbon Capture and Storage (CCS) technology being relied upon to bury future CO2 emissions does not work.

In 2008, Chevron was awarded a $60M grant from the Government to trial a CCS Project as part of their Gorgon Project. Operations started in August 2019, but it has never been able to manage to sequester the 4 million tonnes of CO2 per annum that it was supposed to. Rather, it has since that time only sequestered 6 million tonnes of CO2 in total.

The Government is proceeding with projects in contrast to the International Energy Agency’s recommendation and is doing so by relying on a CO2 offset technology that they know does not work.

A broken promise

Climate Change Minister Bowen says that Australia is committed to a global phase-out of carbon-based energy production, but the reality is that Australia’s energy partnership with Japan’s LNG-dependent economy, ties exemplified by INPEX CEO Ueda’s influence over the Australia Government, though high-level access, economic leverage and occasional blunt coercion, will keep Australia on the global carbon economy for decades to come.

At the last Federal election, the Australian public voted in support of an undeniable need to address climate change. The public did this through their support of Labor, the Teals and the Greens over the Coalition.

And yet, despite their declared support for climate action – reinforced by extreme weather event after extreme weather event – Labor has consciously walked away from their promise to the Australian people and from their commitment to help safeguard the global environment. 

Labour needs to refund their vote.

Postscript

Such is the timidity of the Government in terms of upsetting Japan now, it’s using taxpayers’ money and a secret AAT hearing to keep from the public a previous government’s options paper on lowering gas prices.

Whether it’s honouring a commitment to tackle climate change, or making sure we can debate domestic policies openly, it seems the Government will put those things to one side to keep in good with the Japanese.

It’s a clear betrayal where foreign interest trumps those things that are important to most Australians.

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