Japan urges importers to accelerate securing alternatives to Russian LNG

Japan's Ministry of Economy, Trade and Industry is urging domestic LNG importers to speed up securing alternative supplies to Russian LNG and is also accelerating its own efforts to consider contingency plans, a METI source told S&P Global Commodity Insights on July 7.

The move comes as METI's sense of crisis over potential Russian LNG supply disruptions notched higher from already a high level after the issuance of a recent Russian decree involving the shakeup of the operator of the Sakhalin 2 LNG project, the source said.

The Japanese importers should take it "more realistically" to secure alternative supply sources to Russian LNG to be prepared for supply contingency, the source said, strengthening the ministry's position earlier to reduce the Russian supply dependency.

While Tokyo is requesting Moscow to clarify the recent decree, METI is stepping up its considerations of measures to be taken in the event of Russian LNG supply disruptions, said the source, declining to elaborate.

Russia accounted for 9% of Japan's total LNG imports of 74.32 million mt in 2021, its fifth largest supplier, according to data from Japan's Ministry of Finance.

Over half of the 9.6 million mt/year LNG production capacity at the Sakhalin 2 project, in which Japan's Mitsui has a 12.5% stake and Mitsubishi 10%, at Yuzhno-Sakhalinsk in Russia is committed to Japanese offtakers.

Russian decree

Russian President Vladimir Putin issued a decree June 30 transferring all rights and obligations held by Sakhalin Energy, the operator of the Sakhalin 2 project, to a new Russian company citing unspecified "actions by the US and linked foreign countries and organizations that are unfriendly and incompatible with international law."

The decree stipulates existing stakeholders have a month to submit their approval for the transfer of stakes to the newly created company, after which the government will rule on the admissibility of the submissions.

It was unclear on what grounds the government would or would not allow the existing shareholders to hold proportional stakes in the new company. In the event of refusal or the deadline being missed, the corresponding stakes are to be sold, with the proceeds transferred on behalf of the shareholders to government-designated Russian bank accounts, from which any expenses incurred to date can be deducted.