Japan to ban 'in principle' Russian oil imports following G7 pledge: PM

Japan will ban "in principle" Russian oil imports following the latest commitment by leaders of the G7, Prime Minister Fumio Kishida said May 9.

"Based on the latest G7 leaders' joint statement, we have decided to impose a ban in principle on Russian oil imports," Kishida told reporters.

Kishida's remarks came after G7 leaders agreed on 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 latest move comes a month after the government's announced decision on April 8 to ban Russian coal imports in phases as part of an earlier commitment by G7 nations.

S&P Global Commodity Insights' JY Lim, oil markets advisor at Platts Analytics, said G7's decision to phase out and ban Russian oil imports did not come out as a surprise to the market because of the US ban on Russian oil imports, with the EU debating a proposed ban by the year-end.

"However, there are still uncertainties as to how the plans will be imposed in an orderly manner for countries to secure alternative supplies," Lim said. "Asia's direct impact from supply disruption of Russian crude will not be as significant when compared to Europe, which imported close to 2.7 million b/d last year, though any reduction of Russian exports means Asia will have to compete with others to get its needed crudes."

Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp., said the latest G7 move might create confusion in the oil markets during a transition period, although the impact is likely to level out a little in the mid to long term as non-Western countries could take the Russian barrels quit by the West.

"In the event the Western countries triggering secondary sanctions against consuming countries outside the West, which lift Russian oil, the oil supply and demand balance could be tightened further," Nogami said.

The G7 countries relied on Russia for about 8% of their total crude imports in 2021, according to Nogami's calculations.

Phasing out

Commenting on Japan's equity oil imports from Russia, Kishida said Japan will take steps to phase out the oil imports in such a way as to minimize the impact on people's lives and the country's corporate activities.

"As for the time of reducing and suspending [Russian] oil imports, we will consider them based on the actual conditions," Kishida said. "That is to say that we will spend time for taking steps for the phase out."

Kishida added that Japan remains 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.

Japan's top two refiners, ENEOS and Idemitsu Kosan, said they have suspended signing new Russian crude oil import contracts. ENEOS attributed its move to Russia's invasion of Ukraine, while Idemitsu cited uncertainty over settlement of payments and possibility of logistics disruptions.

Japan's Taiyo Oil, which relies on Russia for 20%-30% of its crude procurement, does not have any immediate plans to lift term crude supply as it is clarifying viability of the term supplies, as well as not undertaking any Russian spot crude procurement, a company spokesperson told S&P Global April 4.

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 data by the Ministry of Finance.
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, 10%, also 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.

Russia accounted for 9% of Japan's total LNG imports of 74.32 million mt as the fifth largest supplier in 2021, according to the MOF data.