Russia fears prompt Japanese gas importers to seek new suppliers

Japanese gas companies are preparing plans to source liquefied natural gas supplies from Malaysia, Australia and the United States in case they fear an imminent supply disruption from LNG projects that Japan has jointly developed with Russia. .

Contingency plans could put the world’s third-largest economy in direct competition with Europe for global gas supplies, underscoring Japan’s focus on meeting its own energy needs despite its willingness to show solidarity with Russia’s western neighbours.

Japanese gas importers have said that while some excess LNG cargoes have been shipped to Europe since February, there is no prospect of major diversions from long-term contracts from producers such as Qatar due to sensitivities in the market. Japan on energy security.

Japanese power companies are concerned about the security of supplies from Russia, despite promises from Tokyo not to withdraw from the 10 million tonnes per year Sakhalin-2 LNG project and other joint developments with the Russia on the island of Sakhalin in northern Japan.

“In the event of gas supply difficulties from Sakhalin, we plan to use our Malaysian suppliers to increase the volume or ask them to deliver in advance,” said Takayuki Yamane of Hiroshima Gas Co. The utility buys approximately 200,000 tonnes of its annual LNG. of Sakhalin-2 under a contract that runs until March 2028.

Finding new sources of LNG would put Japan in competition for the world’s scarce supplies against European nations desperate to reduce their own heavy reliance on gas routed from Russia.

Japanese companies fear that Russian supplies could be threatened by growing international pressure to sever ties with Moscow following its invasion of Ukraine, or by possible Kremlin retaliation following other sanctions already imposed by Tokyo.

Japan on Friday banned imports of Russian coal and pledged to follow the policy agreed with G7 allies to reduce dependence on Russian energy as a whole.

Japan’s regional gas utilities rely heavily on Russia to supply some of the country’s biggest cities, including half of the annual supplies used in Hiroshima, Prime Minister Fumio Kishida’s hometown, and around 10% in Tokyo. In total, Russian LNG accounts for almost a tenth of Japanese gas imports.

In western Japan, Osaka Gas has announced plans to advance gas supplies from Australian and US suppliers or buy on the spot market if shipments from Russia are disrupted. The company serves Osaka, Japan’s third-largest city, which depends on Russia for about 4% of its gas.

Concerns over Russian gas highlight Japan’s increased dependence on energy imports after the resource-poor country idled most of its nuclear reactors following meltdowns at the Fukushima Daiichi in 2011.

The Sakhalin-2 project was developed by Russia’s Gazprom and oil major Shell, as well as Japanese trading companies Mitsui and Mitsubishi, which hold 12.5 and 10 percent stakes in the project, respectively. Shell abandoned the company last month, putting pressure on Japanese stakeholders.

Koichiro Matsumoto, deputy cabinet secretary for public affairs in Kishida’s office, said Japan would not give up on Sakhalin-2 and two other energy projects in Russia, even as it agreed with other countries of the G7 on the need to “reduce our dependence on Russian energy”.

“Whenever we talk about withdrawal, we always have to keep in mind who is going to replace it,” Matsumoto said, warning that companies of “particular origin” could rush to take over Tokyo’s shares. Other Japanese officials have privately expressed concerns about Chinese companies replacing Japanese interests in the Russian Far East.

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It would cost Japan at least 1 billion yuan to replace Russian gas with spot market purchases, said a Commerce Ministry official involved in oil and gas policy. “It’s a crazy amount, and even then – because there’s a global fight for LNG – no matter how much money you pay, you just can’t buy those kinds of volumes,” said the responsible..

Japan transferred some of the excess gas it “over-processed” from suppliers to Europe, following a request from US President Joe Biden in February.

Since the beginning of this year, 29 LNG carriers chartered by Japanese companies have arrived at European import terminals, mostly from the United States, according to Kpler, a commodity data company. They have unloaded around 2 million tonnes of LNG, which is equivalent to around 6% of EU LNG imports since the beginning of this year.

But people from major Japanese gas importers said any diversion would be limited.

“We are aware of the great risk involved in importing Russian energy,” Matsumoto told the prime minister’s office. Yet, he added, “we don’t have the luxury of being able to produce oil or gas within our borders and that’s why energy security is always on our minds.”

Additional reporting by Harry Dempsey in London

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