Though squabbles over automobiles and agricultural products appear to have stalled negotiations for the time being, all hope for a deal is far from lost. Indeed, there is one issue that might prove the lynchpin of concluding negotiations: energy. A free trade agreement that includes an element of national treatment of liquefied natural gas has the propensity to open the floodgates of trade in the energy market between the two countries. Here is the story of how it might happen.
Japan’s energy woes began in March 2011, when a 9.0 earthquake struck off the coast of Sendai in Japan’s Tōhoku region. The tsunami that followed the earthquake spurred the catastrophic meltdown of three of the Fukushima I Nuclear Power Plant’s six nuclear reactors. This represented the largest nuclear disaster since Chernobyl. In response to the crisis, the Japanese nuclear power program screeched to a halt. Between March 2011 and May 2012, the country lost all of its nuclear capacity, with all 48 remaining nuclear reactors being shut down for safety checks. Thus far, applications to restart 17 nuclear reactors have Japan, once the third largest producer of nuclear energy, is now reliant upon importing natural gas and other forms of energy to compensate for the loss of nuclear power. The increased demand and tight supply have proved costly for the country; in 2013 alone, Japan purchased 87.49 million metric tons of liquefied natural gas in 2013 to the tune of a record setting seven trillion yen. Indeed, Japanese nuclear plant operators have spent an estimated $87 billion on replacement fossil fuel since 2011. As a result, Japan has become the world’s largest importer of liquefied natural gas (LNG).Talks of renewing some of Japan’s nuclear reactors are in the air, yet the odds that Japan will fully regain its nuclear capacity anytime soon (if ever) are rather slim. Additionally, the ongoing conflict over Crimea has placed Japan in an awkward diplomatic position, as the country relies on Russia for 10 percent of its natural gas imports. This leaves Japan at odds with its western allies, particularly as said allies intensify sanctions against Russia. Indeed, Japan’s visa bans on 23 Russian individuals in April 2014 drew sharp criticism from Moscow. Talks of a deal with Russia and Japan that would create a 1,350-kilometer (839 mile) natural gas pipeline between the two countries have been circulating for months, yet the Crimea affair may put these negotiations in jeopardy, leaving Japan searching for alternatives to assuage its energy crisis.
Meanwhile, across the Pacific, the United States has amassed a wealth of natural gas in recent years, becoming the world’s largest producer of natural gas. The country’s “pivot” to Asia has placed a newfound emphasis on increasing exports to the continent. However, the export process is cumbersome, as companies wishing to export natural gas must be approved for a license by the Department of Energy, based upon whether or not it would be in the public interest to permit such transactions. Indeed, despite being the largest producer of natural gas, the United States is only the eighth highest exporter of natural gas. The energy-deficient Japan, it seems, would be an extremely lucrative export partner, yet, given the sluggish pace of the permitting process, it could take a considerable amount of time for US exporters to reap the benefits of this underutilized market. So how might this process be expedited? Here is where TPP comes in: this licensing process is not applicable to countries with which the United States has a free trade agreement. The Department of Energy has recently approved a few licenses to Japan, but an FTA could certainly hurry the process along.
Now, supposing that an element stipulating national treatment for trade in natural gas is included in TPP, some of the aforementioned issues might be assuaged. Indeed, LNG could prove a vital point of cooperation between the United States and an energy hungry Japan, particularly in advance of the 2020 Tokyo Olympic Games. It would behoove proponents of the Trans-Pacific Partnership not to forget this point.