CALGARY — The government of Japan could cover as much as half of the costs for Japanese companies to build major natural gas, hydrogen and ammonia projects in Canada, part of the Pacific nation’s US$107-billion effort to secure new supplies of low-carbon fuels and reduce its dependence on Russian energy.

According to a presentation to potential developers in Canada prepared by a Japanese multinational company, Japan’s government would cover up to 50 per cent of project costs in the form of loan guarantees or equity injections into companies building commercial-scale ammonia and hydrogen developments. 

Japan—through the Japan Organization for Metals and Energy Security, the country’s energy agency—would also cover up to half of the cost of initial project design, the document said. The Logic obtained a copy of the presentation, but agreed not to name the company to protect the identity of the Canadian source who provided it. 

The presentation underscores Japan’s growing appetite for Canadian natural resources as it looks to drive down emissions to meet net-zero targets. While Japan has used similar financing arrangements to fund projects in other sectors, including Canada’s oilsands, the funding model specific to lower-carbon fuel sources presents major new export potential for western natural-resource developers.

Despite rising demand and Japan’s willingness to invest, some worry the opportunity will face the same regulatory challenges that have constrained the country’s LNG industry. After years of delay, Canada has yet to complete its first LNG export project, while competitors like the U.S. fill the void. 

“There’s billions of dollars on the table of Japanese government money now applied to this new sector,” said the source. “How are we going to get our act in gear?” 

Japan’s economy ministry did not confirm the details of the plans to support Canadian natural-resources projects laid out in the document.

The office of International Trade Minister Mary Ng directed The Logic’s questions to the office of Natural Resources Minister Jonathan Wilkinson. In a written statement, Wilkinson spokesperson Carolyn Svonkin said Canada is talking to Japan about providing natural resources to the country—“particularly in the context of Canada’s commitments to decarbonization and net zero”—and said Canada welcomes foreign direct investment from “like-minded” nations. In response to doubts about Canada’s ability to build projects in time to meet Japanese demand, Svonkin only said that Ottawa is “committed to a science-based review process” for new developments. 

The proposal comes as Canada and Japan deepen trade ties amid an increasingly hostile global race to secure critical minerals and low-carbon fuels. Ng is heading to Osaka and Tokyo next week to meet with her Japanese counterparts, after the two countries outlined loose plans in September to bolster electric-vehicle battery supply chains and collaborate on research in areas such as AI and advanced manufacturing. Japanese companies and investors including Sumitomo and Panasonic have signed deals with Canadian companies, or are on the verge of doing so.

Canada’s federal government, for its part, has already promised tax credits aimed at incentivizing investment in hydrogen facilities and fossil-fuel developments that use carbon-capture and -storage technology. Japan’s proposed supports would add another major cash injection into such projects, further reducing capital costs for Canadian companies. 

Japan has long wanted to secure resources like liquified natural gas from Canada’s West Coast, but those hopes have largely run aground amid Indigenous opposition in British Columbia and prolonged regulatory delays. The country is especially keen on buying ammonia—a byproduct of natural gas—to reduce emissions from its coal-fired power plants and transition away from nuclear power after the 2011 Fukushima disaster.

But observers aren’t certain that Canadian industry can rise to the challenge. Trevor Kennedy, vice-president of trade and international policy at the Business Council of Canada, said Japanese officials have raised “a lot of concerns in recent years” about disruptions to doing business in Canada, including rail blockades and border closures. 

“In talking to Japanese businesses and the government, there’s a lot of interest in Canada, but there’s also a lot of questions,” he said. 

Still, he said Canada is in a prime position to boost trade ties with Japan, supplying anything from ammonia and hydrogen to critical minerals for electric vehicles. 

“In the pursuit of securing additional supplies around the world, Japan also wants to ensure that it’s diversifying its supply—and Canada is really valuable in that sense,” he said. 

The source who provided the document said Japan would likely invest in Canadian projects through major multinational trading companies like Mitsubishi, Itochu, Marubeni, Sojitz and Mitsui. (Mitsubishi owns a 15 per cent stake in the $40-billion LNG Canada project currently under construction on the B.C. coast.)

The Japanese government, the person said, would secure long-term offtake contracts from Canadian suppliers through its local utility companies, while engineering companies like JGC, Chiyoda or Toyo might do the upfront design work on Canadian projects. JGC is the lead engineering company on LNG Canada alongside Fluor. 

According to the document, Japanese utilities Hokuriku Electric Power Company and Kyushu Electric Power are currently interested in signing ammonia offtake agreements in Canada. 

Just over 15 per cent of Japan’s power generation comes from coal, but the country plans to start burning ammonia at coal facilities in an effort to reduce emissions. An analysis by BloombergBNF estimates the process will cost more than wind or solar alternatives would, but Japan’s largest power generator, JERA, is pushing forward with demonstration projects that are expected to come online in 2029 and 2031. 

At the same time, the country is also looking to ramp up LNG imports and shift away from Russia-supplied gas. 

Japan banned all imports of coal and oil from Russia following the latter’s invasion of Ukraine, but two Japanese companies remain invested in Russian natural gas “for the sake of energy security,” according to the Japan Electric Power Information Center. About nine per cent of its LNG imports are supplied by Russia. 

Despite showing an interest in Canadian LNG, Japan has boosted its liquified natural gas imports in recent years mostly from suppliers in the Middle East, Australia and in particular the U.S., according to Japanese government data. Imports from the U.S. skyrocketed from virtually nothing in 2015 to 33 million tons per year in 2021. 

Japan also expects the U.S., the Middle East and Australia to be among the largest potential suppliers of clean hydrogen in coming years, estimating the U.S. will produce more than 45 million tons of the stuff by 2050. Its expectation for Canadian hydrogen supplies on the global market is much smaller—just five million tons.