Japan weighs government's involvement in LNG procurement amid Ukraine crisis

Japan said March 31 it will consider ways for the government to enhance its involvement in the country's LNG procurement as part of its emergency response to energy security concerns in the wake of Russia's invasion of Ukraine.

The idea was presented during the launch meeting of a task force at the Ministry of Economy, Trade and Industry to consider Japan's emergency countermeasures for its strategic goods and energy supply chain amid the Ukraine situation.

As part of the measures, Japan will consider how the government could directly get involved in procurements of LNG, which are currently secured by the private sector, in times of emergency, a METI source said.

The move comes at a time when Japanese companies are finding it increasingly difficult to commit to long-term LNG supply contracts amid uncertainty over demand, coupled with increased pressure for carbon neutrality, the source said.

LNG has been designated as one of the strategic goods by the new task force, along with oil and coal.

Cutting dependency

Japan, which has committed to reduce its dependency on Russian energy as part of the G7 pledge, will also start formal discussions on how the country will be able to reduce its imports of Russian LNG, coal and oil in phases, the source said.

G7 leaders said March 24 that the group comprising of the UK, the US, Canada, Japan, Germany, France and Italy is "taking further steps to reduce our reliance on Russian energy" after having said March 11 it was doing so "in an orderly fashion and in ways that provide time for the world to secure alternative and sustainable supplies."

Russia accounted for 9% of Japan's total LNG imports of 74.32 million mt and was the fifth largest supplier in 2021, when it was also the third-largest coal supplier after Australia and Indonesia, supplying 19.734 million mt, or 11% of the country's total imports of 182.629 million mt, according to Ministry of Finance data.

Russia supplied 4% of Japan's total crude oil imports of 2.48 million b/d in 2021, with the Middle East supplying 92% of the inflows, according to MOF data.

Japan's top two refiners ENEOS and Idemitsu Kosan have said that they have suspended signing their new Russian crude oil import contracts. Idemitsu has also suspended new Russian coal trades for Japanese end-users' imports amid uncertainty over payment settlements and the possibility of logistics disruptions.

The Ukraine crisis is also having an impact on Japanese power and gas utilities' LNG procurement as companies are increasingly avoiding taking spot LNG cargoes from Russia.

Taking steps

Among other steps considered by the task force, Japan will establish a system to monitor the country's LNG transport, inventory, and supply and demand outlook on a regular basis while also enhancing its frameworks to swap fuel cargoes between Japanese companies during emergency.

Japan will also set up a system to exercise surveillance of the country's coal supply networks, as well as analyze the risk in importing Russian coal and consider alternative coal supply sources and transports.

The country will first survey Japanese companies and information like data on thermal and coking coal stocks as well as their shipping and payment mechanism in its efforts to reduce the country's supply risk, another METI source said.

In order to secure oil and LNG supplies for the coming years, Japan also intends to boost its support via state-owned Japan Oil, Gas and Metals National Corporation for Japanese companies' acquisitions of oil and gas upstream assets.