Take-or-Pay under Japanese energy policy

Japan has tried to increase the import of liquefied natural gas (LNG) because of the nationʹs fragile energy supply structure. In Japan, almost all LNG is imported under long-term contracts with a Take-or-Pay clause, although buyers assume considerable risk under such a clause. This paper tries to determine why the Take-or-Pay clause has been retained in LNG import contracts in Japan, focusing on the relation between Take-or-Pay and energy security policy. It is found that the government has not pursued a consistent, consecutive policy on Take-or-Pay under the changing energy situation after oil crises. On the one hand, the government has accepted Take-or-Pay because it secures a stable supply of LNG, but on the other hand, it has tried to scrap Take-or-Pay in order to reduce buyers’ risk. Furthermore, it was not until the middle/late 1990s that the government implemented deregulation. It is concluded that the governmentʹs energy security policy has played an important role in keeping Take-or-Pay in Japan.