Japan asks EU to 'avert impact' of Russian shipping insurance ban on Sakhalin oil

Japan's Ministry of Economy, Trade and Industry has requested the EU to "avert the impact" on Sakhalin equity oil liftings from the EU's ban on insuring and financing seaborne transport of Russian oil to third countries, a METI source told S&P Global Commodity Insights June 22.

The METI confirmation came after Petroleum Association of Japan Senior Managing Director Shinya Okuda said at a press conference in Tokyo earlier in the day that he heard "METI is seeking an exception for equity crude liftings from the Sakhalin 1 and 2 projects."

"As far as I understand, there are no [Japanese} refiners importing Russian crude oil currently," PAJ President Tsutomu Sugimori told the press conference.

"Speaking of ENEOS, we received the last [Russian] barrels in April, and we stopped making any orders since the Ukraine invasion ... our trade has been suspended since then," Sugimori, chairman of ENEOS Holdings, said.

Japan's moves came as Brussels' sixth sanctions against Russia published June 3 also included the prohibition of EU operators insuring and financing seaborne transport of Russian oil to third countries after a winddown period of six months.

The EU's sixth sanctions package includes phasing out Russian crude imports in six months, and other refined products in eight months.

The sanctions were effective immediately but included transition periods and some temporary exemptions, the EU said in a statement.

Russia supplied 4% of Japan's total crude imports of 2.48 million b/d in 2021, while the Middle East contributed to 92% of inflows, according to Ministry of Finance data.

Japanese refiners are already phasing out their imports of Russian crude oil, with the country's top two refiners ENEOS and Idemitsu Kosan having already suspended new Russian crude oil import contracts.

Japanese stakeholders also receive Sokol crude oil from the Sakhalin 1 project, corresponding to their stakes, and sell their equity crude in the market, according to a Japanese stakeholder.

Japan has repeatedly said it will remain committed to keep the country's interests in the Sakhalin 1 and 2 projects in Russia as the supply contributes to a stable and affordable energy supply in the long term.

Japanese Prime Minister Fumio Kishida said May 9 that Japan will ban "in principle" Russian oil imports following the latest commitment by leaders of the G7. G7 leaders agreed May 8 to phase out Russian energy, including oil, "in a timely and orderly fashion," while ensuring "stable and sustainable global energy supplies and affordable prices for consumers."

Tokyo's move came a month after the government's decision April 8 to ban Russian coal imports in phases as part of an earlier commitment by G7 nations.

Russian projects

Japan's Sakhalin Oil and Gas Development Co., or SODECO, has a 30% stake in the Sakhalin 1 project. The Ministry of Economy, Trade and Industry has a 50% stake in SODECO while Japan Petroleum Exploration holds a 15.285% interest, Itochu 14.456%, Marubeni 12.349%, INPEX 6.08%, and Itochu Oil Exploration 1.83%.

Japan's Mitsui, at 12.5%, and Mitsubishi, at 10%, hold stakes in the Sakhalin 2 project.

More than half of the 9.6 million mt/year LNG production capacity at the Sakhalin 2 project is committed to Japanese offtakers, and Sakhalin 2 LNG accounts for almost all of Japan's LNG imports from Russia.

Both Russia and the EU have obligations to ensure that international projects are not affected by conflict, a chartering source handling Russian LNG said.

When sanctions were imposed on Russia, it was decided that supply deals that were made before the war with Ukraine will not be under its ambit, the source said.

LNG shipping sources in Singapore said Russian supply to Asian buyers is continuing because many of these deals being executed now pre-date the war and are by private entities not controlled by Kremlin. Most of these cargoes are being shipped in LNG carriers on long-term charters running into several years but not owned by Russian companies, they said.

Sakhalin is developed by an international consortium and so the impact of any ban on insurance and reinsurance of Russia-controlled ships carrying LNG cargoes from there to Asia can be averted despite the current sanctions, a broker with an LNG tanker said.