Japan’s economy, which was hit hard by the COVID-19 pandemic, emerged from recession and grew more rapidly than expected in the first half of 2023, thanks mainly to robust domestic consumption. But more recently, overseas demand has slackened, clouding the outlook for the country’s export-reliant economy. Meanwhile, the global surge in energy prices triggered by the February 2022 invasion of Ukraine has dealt a particularly serious blow to Japan, creating new urgency around the task of securing stable energy supplies while simultaneously striving to produce a virtuous cycle between economic growth and environmental protection.
Japan has pledged to be carbon neutral by 2050. To achieve this ambitious goal, its Ministry of Economy, Trade, and Industry (METI) has drawn up a new Green Growth Strategy that includes support for carbon-reducing innovations in key industrial fields in the form of a 2 trillion yen ($19 billion) Green Innovation Fund. Hydrogen is expected to play a key role in Japan’s clean energy transition, as is carbon capture, utilization, and storage (CCUS) given the country’s heavy reliance on fossil fuels.
METI’s strategy, which aims to substantially increase the country’s hydrogen market, relies on sourcing blue and green hydrogen from stable, low-cost producers around the world, transporting it back to Japan using hydrocarbons, ammonia, or methane as energy carriers. This will require strengthening ties with potential hydrogen exporting countries.
As a trailblazer in hydrogen diplomacy, Japan is seeking to develop a new pattern of energy interdependence with its longstanding partners, the Gulf Arab states — countries that are promising production bases for and exporters of green hydrogen and ammonia, and whose leaders have come to regard the development of clean hydrogen as an attractive way to diversify their economies.
Japan’s energy security challenges and “green transformation”
Japan faces fundamental energy security challenges as an island country with sparse natural resource endowments and no international pipelines or electricity connections. The country’s potential to expand its renewable energy capabilities is limited. Fossil fuels — oil (37%), coal (27%), and gas (20%) — constitute the lion’s share of Japan’s total energy consumption.
Having no notable domestic production, Japan is heavily dependent on imported crude oil and liquefied gas, much of which is sourced from the Middle East. The region accounted for over 94% of Japan’s oil imports in 2022, most of which was supplied by Saudi Arabia and the United Arab Emirates; and 10% of the country’s gas imports, mainly from Qatar. Russia’s war on Ukraine has deepened Japanese concerns about energy security, upending Tokyo’s plans to position Russia as a strategic energy supplier to reduce its heavy reliance on the Middle East.
Given these circumstances, not to mention concerns about China’s increasing engagement with the region, Tokyo is doubling down on efforts to position itself as a valued, reliable partner of the Gulf Arab countries, forging “green alliances” with them that leverage Japan’s competitiveness in low-carbon technologies.
Japanese leaders have portrayed the path to decarbonization as both a challenge and an opportunity for growth. But achieving the aim of carbon neutrality by 2050 will require Tokyo to accelerate the deployment of low-carbon technologies. Last February, amid the heightened energy risks after Russia’s invasion of Ukraine, Prime Minister Fumio Kishida’s administration issued the GX (“Green Transformation”) Basic Policy.
The GX policy relies heavily on blue hydrogen, ammonia co-firing, coal gasification, carbon capture and storage (CCS), and natural gas to bridge the country’s transition to renewable energy. In December 2022, METI compiled an interim arrangement plan to establish a supply chain system by around 2030 with a view to expanding the use of hydrogen and ammonia in the country.
Japan is betting big on hydrogen. In June, the Japanese government adopted a revision of its Basic Hydrogen Strategy centered on increasing the use of hydrogen as fuel, laying out plans to invest more than $100 billion in hydrogen supplies over the next 15 years. To achieve its aim of increasing hydrogen use, Tokyo is seeking to establish international supply chains to import decarbonized energy by sea. The Japanese government also plans to enact new legislation to financially support industries that are involved in the production and establishment of hydrogen and ammonia supply chains, as well as the development of relevant infrastructure.
The Basic Strategy identifies five specific areas where Japanese companies have advantages over their global competitors in terms of cutting-edge technology: hydrogen production and the hydrogen supply chain; decarbonized power generation; fuel cells; hydrogen use, including iron/steel, chemical products, and hydrogen-fueled vessels; and hydrogen compounds, including fuel ammonia and carbon-recycle products. Spurred on by government support, Japanese conglomerates are working to accelerate development of hydrogen-fueled power generation, carbon capture, and solid-state battery technologies.
While the green hydrogen supply chain is being developed, blue hydrogen will be key to Japan’s energy transition. The new strategy’s designation of ammonia as a low-carbon energy source alongside gas has drawn heavy criticism from environmentalists and some Japanese officials. Price of Oil International portrayed the GX policy as “an exercise in greenwashing designed to benefit Japanese corporate interests.” Yet, Tokyo is undeterred, and Japan’s collaboration with Gulf countries on hydrogen is a marriage in the making.
Gulf Arab states and the hydrogen economy
A recent study by Rethink Energy Research projects that the hydrogen market will result in one of the largest ever disruptions to the energy sector. Ranking among the world’s lowest-cost producers of oil, natural gas, and renewables, the Gulf Arab countries are well situated to produce competitive blue and green hydrogen. They also have the port facilities and other infrastructure needed to export hydrogen. According to the International Energy Agency’s global assessment of announced hydrogen projects as of end 2022, besides Saudi Arabia and the UAE, Oman is among the top candidates for producing and exporting hydrogen and could become the largest exporter of the fuel in the Middle East this decade.
The Gulf Arab states have warmed to the idea that they might be able to establish themselves as key suppliers in the nascent hydrogen industry. In October 2021, for example, Saudi Arabia’s minister of energy, Abdulaziz bin Salman Al Saud, announced the goal of becoming the world’s largest hydrogen producer and, while building on existing infrastructure and know-how, simultaneously advance the decarbonization of exports. In July, the UAE Cabinet approved the National Hydrogen Strategy, which aims to accelerate the growth of the hydrogen economy and establish the Emirates as a leading producer of low-carbon hydrogen by 2031. Late last year, Oman issued a Strategy on Green Hydrogen that foresees $140 billion in investment by 2050 and created a central and independent entity (Hydrom) to steer the accelerated development of the hydrogen sector.
The region’s first large-scale hydrogen projects are in the advanced planning and/or implementation stages. Qatar has launched a project to build the world’s largest blue ammonia production facility. Saudi Arabia’s Green Initiative envisions the substantial development of green hydrogen and green ammonia production centered around NEOM. If fully implemented, the project would set up the world’s largest utility green hydrogen facility. The UAE is also developing green hydrogen within its borders and abroad, mainly through Masdar. In January, the Abu Dhabi National Oil Company (ADNOC) formed an alliance with the UAE’s ADQ and Mubadala Investment to explore the adoption and use of hydrogen in utilities, mobility, and industries. Oman recently signed six agreements with international developers to build integrated H2 projects.
Gulf Arab countries are already managing to produce hydrogen economically. According to a report issued by Bain & Company in June, the cost to produce green hydrogen in the region could drop as low as $1 per kilogram by 2035. Meanwhile, the Gulf states can produce blue hydrogen as a transitional variety at a low cost to seed the market, as they pursue ambitious plans to meet growing demand in Europe and the Asia-Pacific, including Japan. But Gulf nations need outside assistance to bring their hydrogen strategies to fruition — that is, to develop the requisite infrastructure to improve supply chain economics for the supply of H2 to their target green hydrogen export markets.
Japan and the Gulf: Toward a new pattern of energy interdependence
An analysis published last year by the International Renewable Energy Agency stated that the rapid growth of the hydrogen economy could spawn new patterns of interdependence. Japan and the Gulf Arab states are well matched to develop these new patterns, and there is mounting evidence of a mutual interest in doing so.
According to METI’s Strategic Road Map for Hydrogen and Fuel Cells published in March 2019, the Japanese government’s efforts to establish the global hydrogen supply chain include enhancing government-level relationships with countries with rich renewable resources, such as the Middle East’s oil and gas producers.
In September 2020, the Institute of Energy Economics, Japan and Saudi Aramco, in partnership with SABIC, Mitsui, and Japan Oil Company, collaborated to produce and ship the first cargo of blue ammonia from the kingdom to Japan for use in zero-carbon power generation. This pioneering endeavor spanned the full value chain, including the conversion of hydrocarbons to hydrogen and then to ammonia, as well as the capture of associated CO2. Six months later, Japan’s largest refiner, ENEOS Corporation, signed a memorandum of understanding (MoU) with Aramco to consider development of a CO2-free hydrogen and ammonia supply chain. In July, JERA Co., Inc. (JERA), Japan’s biggest power generation company, signed an MoU with Saudi Arabia’s Public Investment Fund (PIF) to develop green hydrogen projects and derivatives jointly; and Japan’s Marubeni Corporation reached an agreement with the PIF to conduct a feasibility study for producing clean hydrogen for both domestic and international markets. The first shipment of low-carbon ammonia produced by SABIC with feedstock from Aramco and purchased by Fuji Oil Co. arrived in Japan this past April.
Japan and the UAE, too, are pursuing joint efforts to enhance industrial cooperation and drive new opportunities in hydrogen and renewables. In 2021, INPEX Corporation (INPEX), JERA, and a government agency, the Japan Oil, Gas, and Metals National Corporation, forged a joint study agreement with ADNOC to explore the commercial potential of blue ammonia production in the UAE. Also in 2021, Japan’s INPEX, Idemitsu, and Itochu purchased cargoes of blue ammonia from ADNOC. More recently, Japan’s Mitsui, along with South Korea’s GS Energy, agreed to take stakes in a blue ammonia plant being developed at Ruwais, joining with ENEOS and ADNOC to evaluate the development of a commercial clean hydrogen supply chain between the UAE and Japan. In January, METI and ADNOC established the Japan-UAE Collaboration Scheme for Advanced Technology, which includes collaboration on decarbonization technologies.
Japanese companies are also involved in the H2 sector in Oman, which like Saudi Arabia and the UAE, has its sights set on becoming a Middle East leader in hydrogen. Sumitomo Corporation has teamed up with ARA Petroleum, which is striving to become a carbon-neutral hydrocarbon producer, to develop a hydrogen production facility in the sultanate. Japanese heavy engineering manufacturer IHI Corporation has joined forces with Indian green energy developer ACME Group, based in Oman, to explore participation in green ammonia production projects.
The current Japanese government is fully committed to developing emerging energy options, and to leveraging the country’s competitive advantage in clean energy technologies to strengthen ties with its vitally important energy suppliers in the Gulf. Prime Minister Kishida’s visit to the region in July was aimed at securing stable oil and gas supplies, as well as boosting Japan-Gulf cooperation in hydrogen and other renewables. While in Jeddah and Abu Dhabi, he signed a slew of agreements to develop clean hydrogen, ammonia, and recycled carbon fuels. In addition, Japan and Saudi Arabia announced a new joint effort, the “Manar” initiative, which features a range of projects that drive the transition to clean energy, focusing on areas such as hydrogen and ammonia technologies; and launched the Lighthouse Initiative for Clean Energy Cooperation, aimed at supporting the kingdom’s ongoing efforts to become a hub for clean energy. Prior to his arrival in the UAE, Prime Minister Kishida said in an open letter that he planned to offer Japan’s “cutting-edge decarbonization technologies” as part of a green energy initiative for the Middle East, under which Tokyo and Abu Dhabi will cooperate in the fields of “hydrogen and ammonia production and utilization as well as carbon recycling.”
Japanese and Gulf Arab leaders alike have underscored the need to adopt “realistic” approaches to carbon neutrality. They share the view that hydrogen has high potential as a driver of economic growth and as an effective climate solution and are taking steps to strengthen cooperation on decarbonization, including joining forces to accelerate the development of green hydrogen. Thus, they are laying the groundwork for a new pattern of energy interdependence.
Dr. John Calabrese teaches U.S. foreign policy at American University in Washington, D.C. He is a senior fellow at MEI, the book review editor of The Middle East Journal, and previously served as the director of MEI's Middle East-Asia Project (MAP).
Photo by Akio Kon/Bloomberg via Getty Images
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