Japan's Tohoku weighs contingency plans for Sakhalin 2 LNG supply disruption

Japan's Tohoku Electric has laid out contingency plans for a supply disruption from the Sakhalin 2 LNG project as it suspended Russian coal procurements, a company spokesperson said July 20.

Tohoku Electric, which relies on Russian LNG for about 10% of its LNG procurement, is being prepared for the Sakhalin 2 LNG supply contingency, where it will be able to adjust its LNG inventory level in the short-term should there is any disruptions, the company spokesperson said.

In the event of a sharp drop in its LNG inventory from the supply disruptions, Tohoku Electric will consider actions like adjusting its term supply shipment schedules as well as requesting incremental supply from existing long-term suppliers, and procuring additional cargoes from short-term and spot procurements, the spokesperson said.

In the mid-to-long term, Tohoku Electric intends to consider alternative supply contracts to Russian LNG, while taking into account geopolitical risks for alternative procurements, the spokesperson said.

The move by Tohoku Electric comes amid heightened concerns in Japan over potential LNG supply disruptions after Russia June 30 issued a decree referring to an operatorship shake-up of the Sakhalin 2 LNG project.

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

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.

Tohoku Electric, which relies on Russia for about 10% of the coal procurements, has suspended procuring Russian coal as a result of supply disruptions and shipping insurance concerns, the spokesperson added.

Japanese utilities and manufacturers are stepping up efforts to seek alternative supplies to Russian coal following the country's decision to phase out Russian coal imports.

Russia was the second-largest thermal coal supplier and third-largest coking coal supplier to Japan in 2021, sending 12% and 8% of the country's total thermal coal and coking coal imports, respectively, according to finance ministry data.

Japan, the world's third-largest coal importer, announced its decision April 8 to ban Russian coal imports in phases as part of a commitment of G7 leaders. Thermal coal accounts for 60% of Japan's coal use, with coking coal accounting for 40% of the coal usage.