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Russia fears urging Japanese gas importers to look for new suppliers

Japanese gas companies are preparing plans to source liquefied natural gas from Malaysia, Australia and the US amid fears of a supply disruption from LNG projects that Japan has developed jointly with Russia.

The contingency plans could put the world’s third-largest economy in direct competition with Europe for global gas supplies and underscore Japan’s focus on meeting its own energy needs despite its desire to show it solidarity with Russia’s western neighbors.

Japanese gas importers said that while some excess LNG cargoes have been shipped to Europe since February, there is no prospect of major derogations from long-term contracts from producers like Qatar due to Japan’s sensitivities over energy security.

Japanese energy majors are worried about security of supply from Russia, despite pledges by Tokyo not to back out of the 10-million-tonne-per-year Sakhalin-2 LNG project and other joint developments with Russia on Sakhalin Island, north of Japan.

“In the event of difficulties sourcing gas from Sakhalin, we are considering tapping our Malaysian suppliers to increase volume or ask them to deliver supplies in advance,” said Takayuki Yamane of Hiroshima Gas Co. The utility is buying about 200,000 tons of its annual LNG from Sakhalin-2 in a contract that runs through March 2028.

The search for new sources of LNG would put Japan in competition for scarce global supplies with European nations, which are desperate to reduce its own heavy reliance on gas from Russia.

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

Japan on Friday Ban on Russian coal imports and pledged to follow policies agreed with G7 allies to reduce overall dependence on Russian energy.

Japan’s regional gas suppliers rely heavily on Russia to supply some of the country’s largest cities, including half of annual supplies consumed in Hiroshima, the birthplace of Prime Minister Fumio Kishida, and about 10 percent in Tokyo. Overall, Russian LNG accounts for almost a tenth of Japan’s gas imports.

In western Japan, Osaka Gas said it plans to frontload gas procurement from suppliers in Australia and the US or buy it on the spot market in the event of a disruption in supplies from Russia. The company supplies Osaka, Japan’s third largest city, which relies on Russia for about 4 percent of its gas.

Concerns over Russian gas underscore Japan’s increasing reliance on imported energy after the resource-poor country shut down most of its nuclear reactors following the 2011 Fukushima Daiichi plant meltdown.

The Sakhalin-2 project was developed by Russia’s Gazprom and oil company Shell together with Japanese trading houses Mitsui and Mitsubishi, which hold 12.5 and 10 percent stakes in the project, respectively. Shell gave up the company last monthwhich puts pressure on Japanese interest groups.

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

“Whenever we talk about the withdrawal, we always have to keep in mind who is going to top that up,” Matsumoto said, warning that companies “of special origins” could step in to take over Tokyo’s shares. Other Japanese officials have privately expressed concerns that Chinese companies could substitute for Japanese interests in the Russian Far East.

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It would cost Japan at least 1 trillion yen to replace Russian gas with spot market purchases, said a Commerce Ministry official involved in oil and gas policy. “That’s an insane amount, and even then — because there’s a global battle over LNG — it doesn’t matter how much money you pay, you just can’t buy those kinds of amounts,” the official said.

Japan has shifted some of the excess gas it has “overcontracted” for from suppliers to Europe, following a request from US President Joe Biden in February.

According to Kpler, a commodity data company, 29 LNG tankers chartered by Japanese companies have arrived at European import terminals since earlier this year, mostly from the US. They offloaded an estimated 2 million tonnes of LNG, equivalent to about 6 percent of the EU’s LNG imports since earlier this year.

But people at the big Japanese gas importers said any diversion would be limited.

“We are aware of the great risk involved in importing Russian energy,” Matsumoto said in the prime minister’s office. However, he added: “We don’t have the luxury of being able to produce oil or gas within our borders, so we always have energy security in mind.”

Additional reporting by Harry Dempsey in London

https://www.ft.com/content/b585ebc5-9dd1-4a7e-96a8-a1791894f140 Russia fears urging Japanese gas importers to look for new suppliers

Adam Bradshaw

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