INTERVIEW: JERA can absorb potential Ichthys LNG strike, may cut Australia supply reliance

Japan's JERA expects to be able to absorb any supply disruption from potential strike actions at the Ichthys LNG sites in Australia, Kosuke Tanaka, head of the LNG division at the largest Japanese power generation company, said May 27.

The company may also consider cutting its Australian supply reliance in the next round of contractual renewal, following policy developments in the country, Tanaka told Platts, part of S&P Global Energy.

"If a strike occurs, one obvious issue is the impact on production," Tanaka said in an interview at the company's headquarters in Tokyo. "Another issue would naturally be discussions with the seller. Depending on the outcome, there could be a case where a strike occurs, and volumes are reduced somewhat, but it can be handled simply by delaying the delivery date; or there could be a case where volumes are genuinely lost. If volumes are lost, then there is also the question of whether alternative supply can be provided."

"Our contracted volume from Ichthys is roughly one to two cargoes per month, so it is not a volume that would be impossible to replace by purchasing in the market," Tanaka added.

JERA procures 1.54 million metric tons/year from the INPEX-operated Ichthys project, which has a nameplate capacity of 9.3 million mt/year of LNG, 1.65 million mt/year of LPG and 100,000 barrels/day of condensate, with roughly 70% of LNG output destined for Japanese buyers, according to INPEX.

The comments came as the Offshore Alliance canceled its planned strike action at the Ichthys LNG sites in Australia over May 27-28, an Offshore Alliance spokesperson told Platts May 26.

"Of course, if there were a scenario in which union workers stopped working on a large scale -- not just for an hour or two, but for a full day -- then one cannot rule out the possibility of a major impact. But at this point, we are still in wait-and-see mode," Tanaka said.

Australian policy

JERA, which procures about 40% of LNG from Australia, is concerned about Australian policy developments that could potentially affect its LNG procurement, Tanaka said.

"Frankly speaking, it is true that this has become one of the areas of concern for supply and for LNG procurement," Tanaka said.

"That is true from a procurement standpoint, and also from the standpoint of an investor, since we have equity investments in LNG projects in Australia."

"A stable and highly predictable regulatory environment is, after all, a very important consideration when thinking about future LNG procurement and investment," he added. "Given that we already have a relatively high exposure to Australia, if this kind of situation continues, it is entirely possible that we would gradually have to reduce that share."

The Australian government announced May 25 the release of the Domestic Gas Reservation Scheme draft design framework, under which LNG exporters will be required to supply 20% of their export volumes to the domestic market.

Asked whether Australian policy developments could lead JERA to reduce its supply dependency, Tanaka said, "For the time being, existing long-term contracts will continue, so I do not think any major change is likely in the near term."

"Most likely, we would make those decisions progressively as our current Australian contracts come up for renewal."

"In that sense, one major example for us is Wheatstone, and that continues until the late 2030s. So if there is going to be a major shift in portfolio share, it would probably happen in the late 2030s. The timing for making such decisions would likely be in the early 2030s," he said, adding that "the question is what direction that policy trend takes."

Middle East

Meanwhile, JERA does not have "major concerns about stable supply for the domestic demand" from the war in the Middle East, Tanaka said.

"As for the impact of the current Middle East situation, sources that originate from within, or transit through, the Strait of Hormuz account for only about 5% of our current LNG portfolio, so the exposure was not especially large to begin with," he said.

JERA imported about 27 million mt of LNG in fiscal year 2025-26 (April-March), when it handled a total of about 40 million mt.

"At that level, if cargoes were to fall away while we monitor the situation, we believe we could respond appropriately by using JERA Global Markets' trading function," he added. "In terms of stable supply, I would say it is not really a problem."

"Also, our LNG demand is not something static -- it can fluctuate quite a bit depending on the timing," he said. "So it is not a simple equation where a cargo is lost."

However, Tanaka said the Middle East situation has been one of the biggest bullish factors alongside Russia sanctions, in the LNG market.

"In the near term, another major issue is simply what summer temperatures will look like going forward," he said. "Another point is how much demand destruction we might see, especially in emerging markets, given the current rise in prices."

Platts assessed the July JKM, the benchmark price for cargo delivered to Northeast Asia, at $18.121/MMBtu May 26, compared with the pre-war level of $10.697/MMBtu Feb. 27.

Russian LNG

"Another thing people are talking about right now is the extent of Europe's gas refill, or injection, into storage," he said.

"European gas inventory levels are still relatively low. Given the backwardation, that is not surprising, but the question is how much that pace of injection will accelerate going forward."

EU gas storage sites were 38.5% full as of May 26, according to the latest data published by Gas Infrastructure Europe.

Commenting on the LNG market impact from the EU ban on Russian LNG imports from Jan. 1, 2027, Tanaka said, "If those volumes can be absorbed by other regions, then I do not think the global balance changes all that much."

"So in that sense, the key issue is where Russian LNG production ends up going," he said.

"From next year onward, I also think the start-up of new US projects will have a fairly large impact on the market," he added.