Japanese Importers Urged To Swiftly Find LNG Substitutes

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  • Recent shakeup of the operator of Russia’s Sakhalin 2 LNG project
  • Russia accounts for 9% of Japan’s LNG imports
  • Over half of the Sakhalin 2 LNG supply committed to Japanese off-takers

According to a METI source who spoke with S&P Global Commodity Insights on July 7, Japan’s Ministry of Economy, Trade, and Industry are pressing domestic LNG importers to expedite finding substitute supplies for Russian LNG and is also stepping up its own efforts to evaluate backup measures.

Sense of crisis

The action was made as METI’s perception of the situation surrounding probable disruptions to the Russian LNG supply increased from its already high level following the publication of a recent Russian decree regarding the operator of the Sakhalin 2 LNG project being changed, the person added.

According to the source, Japanese importers should approach securing alternate supply sources to Russian LNG “more realistically” in order to be ready for supply contingencies. This supports the ministry’s former position that Russian supply dependence should be reduced.

The source, who declined to be named, said METI is intensifying its evaluation of steps to be taken in the case of Russian LNG supply disruptions while Tokyo is asking Moscow to clarify the latest regulation.

According to data from the Japanese Ministry of Finance, Russia represented 9% of Japan’s total LNG imports of 74.32 million mt in 2021, making it the country’s fifth-largest supplier.

More than half of the 9.6 million mt/year LNG production capacity at the Sakhalin 2 project in Yuzhno-Sakhalinsk, Russia, where Japan’s Mitsui and Mitsubishi each hold 12.5% and 10% stakes, is committed to Japanese off-takers.

Russian decree

Using unspecified “actions by the US and linked foreign countries and organisations that are unfriendly and incompatible with international law,” Russian President Vladimir Putin issued a decree on June 30 transferring all rights and obligations held by Sakhalin Energy, the project’s operator, to a new Russian company.

According to the order, current shareholders have one month to consent to the transfer of their holdings to the newly formed business. The government will then decide whether or not the consents are admissible.

What justifications the government would or would not use to permit the current owners to own proportionate holdings in the new corporation were unknown. The related stakes are to be sold in the event of rejection or failure to meet the deadline, with the revenues being transferred on behalf of the shareholders to government-designated Russian bank accounts from which any prior costs can be deducted.

 

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Source: S&P Global

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