Japan imports first Russian oil cargo since 2023 to support Sakhalin LNG flows

Japanese refiner Taiyo Oil has taken a cargo of Sakhalin Blend crude, the country's first delivery of Russian oil since early 2023, in a bid to support stable LNG supplies from the related Sakhalin 2 project that provides about 10% of Japan's domestic LNG needs.

Taiyo Oil is taking delivery of 600,000 barrels of Russia's Sakhalin Blend crude at its 138,000-b/d Kikuma refinery, a company spokesperson said June 9, confirming initial tanker tracking data from S&P Global Commodities at Sea.

Sakhalin Blend is a light, sweet crude produced as a byproduct of LNG production from the project of the same name. Its export to Japan is not subject to the G7's "price cap" on Russian oil due to its critical importance for stable LNG production from the project. Sakhalin Energy is majority owned by Russia's state-owned Gazprom, with minority stakes held by Japan's Mitsui & Co. and Mitsubishi Corp.

"Under the premise that this crude oil is not subject to Russian sanctions, we believe that our acceptance of this crude oil will contribute to the stable supply of LNG from the Sakhalin 2 project and ultimately enhance Japan's energy security," the Taiyo spokesperson said.

Taiyo Oil's comments came as the 113,310-deadweight-tonnage crude tanker Voyager was moored at its Kikuma refinery after having left Prigorodnoye in Sakhalin on May 29, according to CAS.

The US last exempted Japan's maritime transport of crude oil from the Sakhalin 2 project until June 28 for imports into the country, according to the Office of Foreign Assets Control of the US Department of the Treasury.

Although the Voyager is blacklisted under OFAC's sanctioned ships list, the Taiyo spokesperson said the refiner recognizes that there is an understanding between the Japanese and US governments that there is no secondary sanctions risk.

Crude price

Taiyo Oil's intake of the Sakhalin Blend crude marks Japan's first import of Russian crude oil since January 2023, when the country took 747,706 barrels of the grade, according to data from the Ministry of Economy, Trade and Industry. It was Taiyo Oil that took the Sakhalin Blend crude in January 2023 as part of the remaining crude oil volume from its 2022 term contract, according to CAS.

Although Japan is exempt, it is currently technically possible for Northeast Asian refiners to purchase Sakhalin Blend crude below the G7's $60/b price cap on Russian oil due to the recent fall in global oil prices.

This takes into consideration spot market discounts for some Far East Russian crude grades and the downtrend in outright Platts benchmark Dubai crude price, according to traders at an integrated Japanese trading firm, as well as major Japanese and South Korean refiners.

Platts, part of S&P Global Energy, assessed front-month cash Dubai at an average of $65.60/b to date in the second quarter, while the spot differential for Sakhalin Blend crude was assessed at an average of minus $3.75/b over the same period.

Still, feedstock managers at refiners ENEOS and SK Innovation -- which were formerly regular customers of ESPO Blend, Sokol and Sakhalin Blend crudes -- said that they would continue to shun Far East Russian grades, opting to avoid trade, logistical, legal and financial complications.