Japanese energy firms brace for possible cut in supply from Russia

This file photo taken from a Kyodo News helicopter on November 12, 2021 shows Tokyo Gas Co.’s liquefied natural gas tanks at Sodegaura in Chiba prefecture, eastern Japan. (Kyodo)

TOKYO (Kyodo) — Japanese gas and energy companies are closely monitoring the development of Russian aggression in Ukraine, with some eyeing non-Russian players as alternative suppliers, fearing that Moscow could reduce or suspend its gas supply. natural in retaliation for Western sanctions against the campaign.

To prepare for possible supply disruptions from Russia and other emergencies, Hiroshima Gas Co. plans to buy liquefied natural gas from Malaysia and other producers, while Osaka Gas Co. plans to advance gas supplies from the United States or Australia.

President Vladimir Putin also surprised Japanese energy companies by saying that Russia would seek to be paid in roubles, not dollars or euros as commonly used, for gas sales from “hostile countries” such as Japan and the United States. United States, which imposed sanctions on Moscow. .

“We remain very attentive to new developments, including the impact of economic sanctions on Russia,” said a Hiroshima Gas public relations officer.

“We will continue our efforts to maintain a stable supply as we cooperate with other companies to collect information,” the official said.

Tom O’Sullivan, founder of Mathyos Global Advisory, a Tokyo-based energy and security consultancy, said Putin’s announcement was “probably a breach of contract between buyers and sellers”, and that if it materialized, it would hit the European market hard. which is heavily dependent on Russian resources.

In resource-poor Japan, Russia accounted for 3.6% of its crude oil imports and 8.8% of its LNG imports in 2021, according to data from the Japan External Trade Organization.

Most Japanese LNG imports from Moscow come from the large-scale oil and gas project Sakhalin 2, a joint venture involving Japanese trading houses in the Russian Far East with an annual production capacity of around 10 million tons of LNG.

Hiroshima Gas, based in Hiroshima prefecture in western Japan, buys about 200,000 tons, or about half of its annual LNG purchases under a contract running until March 2028 from the project. Sakhalin 2.

Although the company has not yet had any problems obtaining gas from Russia, it will buy from other countries or ask other Japanese utilities to share some of their reserves in the event of a gas shortage. Russian gas supply.

Takehiro Honjo, director of the Japan Gas Association, said the organization will create a structure that will allow companies to share supplies in the event of LNG shortages.

“It will be a problem that Japan will face as a country, and it can only be solved if (every company) comes and works together,” he told a press conference earlier this month. .

Tokyo Gas Co. is also paying attention to the unfolding crisis in Ukraine, as the company buys around 10% of its LNG from Russia.

The utility, which serves the Tokyo metropolitan area, imports about 1.1 million tons a year from Sakhalin.

Fukuoka-based Saibu Gas Co. and Nagoya-based Toho Gas Co. buy some of their LNG supply from Russia, while Tohoku Electric Power Co. and Kyushu Electric Power Co. both get coal and LNG in the country.

The Sakhalin 2 project hosted near Japan’s northern main island of Hokkaido has played an important role in terms of the country’s energy security, enabling stable LNG supply through long-term contracts and shipping costs relatively cheap due to its proximity, according to some energy experts.

Mitsui & Co. and Mitsubishi Corp. respectively own 12.5% ​​and 10% of the shares of the company, in which the Russian energy giant Gazprom PJSC holds around 50% of the shares.

The other stakeholder, British oil major Shell PLC, announced its exit on February 28, four days after Russia launched the invasion of Ukraine, highlighting what the two Japanese trading houses will do in response to aggression.

While Mitsui and Mitsubishi said they would continue discussions on the project with the government and other stakeholders, Economy, Trade and Industry Minister Koichi Hagiuda said the public sectors and private were to cooperate and “take all possible measures to prepare for an unforeseeable event” with respect to the project.

O’Sullivan said companies should come up with a contingency plan in case they run into trouble getting natural gas from Russia.

He said it would be difficult for companies to find alternative gas elsewhere and that Japan would have to pay more if it bought on the spot market, where commodities are traded for immediate delivery, a development that would lead to an increase in energy consumption. prices in Japan.

“It’s going to be difficult,” he said. “I think an alternative is to find other sources of gas supply, but these companies may also have to look for alternative sources,” possibly coal, oil-fired generators or even nuclear power.

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