Japanese gas companies are preparing plans to source liquefied natural gas from Malaysia, Australia and the US in case of what they fear could be looming disruption of supply from LNG projects that Japan jointly developed with Russia.

The contingency plans could put the world’s third-largest economy in direct competition with Europe for global gas supplies, highlighting Japan’s focus on meeting its own energy needs despite its desire to show solidarity with Russia’s western neighbours.

Japanese gas importers said that while some excess LNG cargos have been shipped to Europe since February, there was no prospect of major diversions from long-term contracts from producers such as Qatar because of Japan’s energy security sensitivities.

The Japanese power companies are concerned about the security of supplies from Russia, despite pledges by Tokyo not to pull out of the 10mn-tonnes-a-year Sakhalin-2 LNG project and other joint developments with Russia on Sakhalin island north of Japan.

“In case of difficulties in procuring gas from Sakhalin, we are considering tapping our Malaysian suppliers to increase volume or to ask them to deliver supplies in advance,” said Takayuki Yamane of Hiroshima Gas Co. The utility buys about 200,000 tonnes of its annual LNG from Sakhalin-2 in a contract that runs through March 2028.

Seeking new sources of LNG would put Japan in competition for scarce global supplies against European nations that are desperate to reduce their own heavy dependence on gas piped from Russia.

Japanese companies fear Russian supplies could be threatened by increasing international pressure to cut ties with Moscow over its invasion of Ukraine, or by potential Kremlin retaliation over other sanctions already imposed by Tokyo.

Japan on Friday banned Russian coal imports and vowed to follow the policy agreed on with G7 allies of reducing reliance on Russian energy overall.

Japan’s regional gas utilities rely heavily on Russia to fuel some of the country’s largest cities, including half of annual supplies used in Prime Minister Fumio Kishida’s native Hiroshima, and about 10 per cent in Tokyo. In all, Russian LNG accounts for close to a tenth of Japanese gas imports.

In western Japan, Osaka Gas said it planned to bring forward gas procurement from suppliers in Australia and the US or buy on the spot market if there was disruption of shipments from Russia. The company serves Osaka, Japan’s third largest city, which relies on Russia for about 4 per cent of its gas.

The worries over Russian gas highlight Japan’s increased reliance on energy imports after the resource-poor nation idled most of its nuclear reactors following meltdowns at the Fukushima Daiichi plant in 2011.

The Sakhalin-2 project was developed by Russia’s Gazprom and oil major Shell along with Japanese trading houses Mitsui and Mitsubishi, which respectively hold 12.5 and 10 per cent stakes in the project. Shell last month abandoned the venture, putting pressure on the Japanese stakeholders.

Koichiro Matsumoto, deputy cabinet secretary for public affairs at Kishida’s office, said Japan would not abandon Sakhalin-2 and two other energy projects in Russia, even as it agreed with other G7 countries on the need to “reduce our reliance on Russian energy “.

“Whenever we talk about withdrawal, we always need to bear in mind who is going to backfill that,” said Matsumoto, warning that companies of a “particular origin” could swoop in to take over Tokyo’s stakes. Other Japanese officials have privately expressed concerns about Chinese companies replacing Japanese interests in the Russian far east.

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It would cost at least Y1tn for Japan to replace Russian gas through spot market purchases, said a trade ministry official involved in oil and gas policy. “That is a crazy amount, and even then — because there’s a global fight over LNG — it doesn’t matter how much money you pay, you just can’t buy those kinds of volumes,” the official said.

Japan has been moving some of the surplus gas it has “overcontracted” for from suppliers to Europe, following a request by US President Joe Biden in February.

Since the start of this year, 29 LNG carriers chartered by Japanese companies have arrived at European import terminals, mostly from the US, according to Kpler, a commodity data firm. They unloaded an estimated 2mn tonnes of LNG, equivalent to about 6 per cent of the EU’s LNG imports since the start of this year.

But people at major Japanese gas importers said any diversions would be limited.

“We are aware of the big risk which the import of Russian energy entails,” Matsumoto at the PM’s office said. Yet, he added, “we don’t have the luxury of being able to produce oil or gas within our borders and that’s why energy security is always on our minds.”

Additional reporting by Harry Dempsey in London


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