By Yuka Obayashi
TOKYO (Reuters) – Japan, the world’s prime liquefied pure gasoline (LNG) importer, is dealing with its newest problem in securing very important gasoline provides from Russia after Western reinsurers mentioned they might halt marine struggle insurance coverage for ships travelling in Russian waters from Jan. 1.
Having joined different G7 nations in imposing sweeping sanctions on Moscow for the invasion of Ukraine, Japan has been lowering its reliance on Russian oil and coal, nevertheless it continues to purchase Russian LNG amid elevated costs in a decent international market as Europe ramps up imports.
WHICH COMPANIES ARE AFFECTED?
Japan’s Tokio Marine & Nichido Fireplace Insurance coverage, Sompo Japan Insurance coverage and Mitsui Sumitomo Insurance coverage instructed shipowners final week that from Jan. 1 they might cease providing insurance coverage protection for ship injury brought on by struggle in Russian waters, as a result of reinsurers have been withdrawing protection. With out the struggle insurance coverage, shippers corresponding to Mitsui OSK Traces and Nippon Yusen might need to halt operations in Russian waters, together with loading LNG from the Sakhalin-2 advanced in Russia’s Far East, business sources mentioned. Japan receives 9% of its imported LNG from Sakhalin-2, which is owned by Gazprom and Japanese buying and selling homes.
Lack of provide from Sakhalin-2 may ship Japanese energy and gasoline utilities corresponding to JERA and Tokyo Fuel Co Ltd scrambling for options.
The nation has already confronted repeated challenges in securing gasoline provides since Russia despatched its armed forces into Ukraine in February. It has needed to persuade G7 companions to offer it leeway so it may maintain importing Russian LNG, and after the Russian authorities determined in June to grab management of Sakhalin-2, Japanese buying and selling homes needed to agree to stay as shareholders of the brand new Russian operator.
WHAT ACTIONS HAVE BEEN TAKEN?
To keep away from provide disruption, the three Japanese insurers are negotiating with varied reinsurers to retain the struggle protection.
In a uncommon joint letter, Japan’s Monetary Companies Company and Company for Pure Assets and Power have additionally requested insurers to tackle extra dangers to proceed offering marine struggle insurance coverage for shippers transporting LNG from the Sakhalin-2.
“The highest precedence now’s to safe marine struggle insurance coverage,” a senior official on the business ministry mentioned.
It’s nonetheless unclear whether or not the insurers can safe adequate reinsurance, particularly at a time when many Western counterparts are away on holidays.
WHAT ARE THE OTHER OPTIONS?
Shipowners might proceed operations with out the struggle protection by shouldering the dangers, since voyages between Sakhalin island and Japan are brief, taking just some days, and for the reason that LNG export facility is positioned removed from the battlefields of Russia and Ukraine.
Nevertheless, they danger shedding their tankers to seizure in Russia for some unforeseeable purpose. Every LNG tanker prices 20 billion to 30 billion yen ($150 million to $220 million).
Different events, corresponding to the federal government and Japanese utilities, the consumers of the Sakhalin gas, might need to share the chance, business sources mentioned, though sources within the authorities and amongst consumers mentioned they weren’t but contemplating such a transfer.
“Insurers and delivery corporations are attempting to resolve the problems and we’re carefully watching the state of affairs,” a supply at a utility mentioned.
An alternative choice could be to make use of a sovereign legal responsibility assure, just like the one which coated shipments of Iranian oil to Japan in 2012, after Western insurers lower cowl attributable to sanctions on Iran.
Laws that authorised that assure was for Iranian oil imports solely, so new legislation could be wanted for ensures protecting shipments from Russia, the ministry official mentioned.
WHAT IS THE RISK FOR JAPAN’S GAS AND POWER SUPPLIES?
The clock is ticking, however any speedy danger of gas and energy shortages seems to be small, even when some LNG cargoes are delayed early subsequent month, one other supply at an influence utility mentioned. The rationale was that shares constructed up forward of the height winter demand season have been bigger than typical, that supply mentioned.
LNG inventories at Japan’s main energy utilities have been 2.41 million tonnes on Dec. 25, above the five-year common of 1.84 million tonnes for a similar time of 12 months, in keeping with business ministry information.
Additionally, Japan has created a brand new mechanism to permit the business ministry to assist redirect provides of LNG within the occasion of an emergency so gasoline and energy corporations don’t run brief.
If provide from Sakhalin-2 is disrupted, consumers can train the upward amount tolerance clause sometimes present in long-term contracts, permitting them to request 5% to 10% extra volumes from suppliers elsewhere.
A supply at an city gasoline supplier mentioned his firm may additionally get different provide from the spot market if it may settle for the upper worth there.
Japanese consumers paid $15.78 per million British thermal items (mmBtu) for Russian LNG in November, under the typical worth of imported LNG of $17.86 and a median spot-cargo worth for supply to Japan of $18.40, in keeping with the Japan Group for Metals and Power Safety.
The typical LNG worth for February supply to northeast Asia is round $31 per mmBtu.
Japan makes use of LNG for 39% of its electrical energy era.
(Reporting by Yuka Obayashi; Modifying by Florence Tan and Bradley Perrett)
