S&P/ASX 200 Index (ASX: XJO) energy shares are taking a fall today.
Though they're hardly alone.
In afternoon trade the ASX 200 is down 1.4%.
The big energy stocks are actually faring slightly better, with the S&P/ASX 200 Energy Index (ASX: XEJ) down 1.2% at this same time.
Here's how these leading ASX 200 energy shares are tracking:
- Santos Ltd (ASX: STO) shares are down 0.9%
- Beach Energy Ltd (ASX: BPT) shares are down 0.7%
- Woodside Energy Group Ltd (ASX: WDS) shares are down 1.0%
Investors don't appear overly concerned, yet, that Japan may look elsewhere for its gas imports following the 1 July implementation of Labor's safeguard mechanism.
Why is Japan miffed at the Aussie government?
As The Motley Fool reported Tuesday, in relation to ASX 200 energy share Santos, Japan has been lobbying the Australian government to implement "flexible measures" in the new safeguard mechanism.
The mechanism mandates that all new gas fields will need to meet stringent net-zero emissions guidelines, from initial drilling through to the last day of production. And unlike the subsidies offered in the United States under the Inflation Reduction Act, the Aussie government is putting the burden of paying for any required carbon offsets on the ASX 200 energy shares.
Japan has been a long-term customer of Aussie gas, securing its first shipment back in 1989. The nation currently sources some 40% of its gas from Australia.
And Japanese companies are putting up some major funding to help ASX 200 energy shares develop new gas projects.
For example, Santos is developing the $5.8 billion offshore Barossa Gas Project together with Japanese and Korean joint venture partners JERA and SK Group.
The consortium made the final investment decision (FID) for Barossa in March 2021.
That was well before the government flagged the costly regulatory changes contained in the safeguard mechanism.
To date, the government said it won't exempt Barossa from its new emissions policies, despite Japan's request.
Could ASX 200 energy shares lose Japan as a customer?
Japan is clearly displeased with the Aussie government for moving the regulatory goalposts in mid-game.
As The Australian Financial Review reports, Japan's Institute of Energy Economics chief executive Tatsuya Terazawa said the safeguard mechanism could see the nation turn elsewhere for its gas imports, including Alaska.
That could see Australia's big gas exporters lose access to a valuable market.
According to Terazawa:
Australia and Japan worked together at the highest level to develop and support LNG but now changing policies, new constraints and burdens are put in place. It is like changing the rules of the game after the game has started, and the game was started at the highest level.
While we understand the need to deal with the environment issue, this long-term trust and win-win relationship that we have developed over the years will have to be more respected.
In a warning shot to the Aussie government that could have future implications for ASX 200 energy shares, last month Japan's Minister for Economy, Trade and Industry, Yasutoshi Nishimura said (quoted by the AFR):
Australia has been our most trusted supplier of LNG. Unfortunately, the recent policy changes in Australia put serious questions on the future role of Australia as a reliable supplier of LNG.
