As both Eastern and Western Australia face gas shortfalls, Japan is on-selling vast volumes of Australian LNG at a handsome profit, according to new research.

In-depth analysis of LNG shipment and contract data shows Japanese companies are lucratively on-selling about half as much as they import from Australia, as revealed in the briefing note, How Japan cashes in on resales of Australian LNG at the expense of Australian gas users.

Authors Amandine Denis-Ryan and Josh Runciman explained that last year alone, Japan on-sold an estimated 600-800 petajoules of Australian LNG to other countries.

Denis-Ryan, who is also Chief Executive Officer at IEEFA Australia, said: “In total, we estimate Japanese resales of Australian LNG likely amount to at least 11.3 million tonnes and up to 14.7Mt.

“In petajoules, this means Japanese resales of Australian LNG likely amount to at least 627 petajoules and up to 812 petajoules, or 1.2-1.6 times Eastern Australia’s total domestic gas consumption.”

Australia appears to be the largest source of LNG on-sold by Japan, representing 41 per cent of Japanese-chartered shipments sold to third countries last year, followed by the US.

Within Australia, the largest sources are Western Australia, followed by the Northern Territory then Queensland.

In both Eastern and Western Australia, Japanese resales volumes are larger than the projected annual gas shortfalls in coming years.

Denis-Ryan added: “It is quite extraordinary that Australia is now facing gas shortfalls on both sides of the country, even considering importing LNG, while Japan resells enormous volumes of our gas overseas for a profit.”

With Japan’s domestic gas use steadily declining, LNG importers there have discovered a lucrative side hustle in this third-party trade.

IEEFA estimates Japanese companies resold $11 billion to $14 billion of Australian LNG last year alone, with profits likely exceeding $1 billion.

Runciman, Lead Analyst for Australian Gas at IEEFA, said: “With such a large volume of Australian LNG being purchased and resold by Japan, the profit on those resales is likely a key driver for Japan’s interest in the Australian energy market,.

“This is evidenced by the fact that the total volume of Australian LNG shipments going to Japan (26.4 million tonnes) equals the total volume of contracts (26.6 million tonnes), showing resales are not due to contract surpluses.”

More than two-thirds of the resold LNG ends up in Taiwan and South Korea, high value markets for Australian gas producers.

Denis-Ryan continued: “This should be concerning for Australian producers, for whom these are premium markets with high purchasing power and low credit risk.

“Based on Australian government estimates of market value in 2023, Taiwan and South Korea present the highest value of Australia’s major LNG markets at $979 and $1,086 per tonne of LNG respectively, compared with an average export value of $921 per tonne.”

Citing energy security concerns, Japan has opposed any moves by Australia to rein in LNG exports.

In Canberra, however, this should be a lightbulb moment as the federal government grapples with reserving gas supply for domestic use.