Japan announces plans to divert LNG supplies to Europe amid Russia-Ukraine tensions
Japan will divert liquefied natural gas (LNG) cargoes to Europe in response to calls for supplies from the West, amid continued concern over the build up of over 100,000 Russian troops within proximity of Ukraine’s borders.
The country’s economic, trade and industry minister Koichi Hagiuda said: “We have decided to respond to requests from the United States and EU for sending LNG to Europe, where gas supply is tight.”
He explained diversions will be made with surplus supply, after ensuring Japan’s local demand will be met and electricity generation will remain stable.
The US and Europe are aiming to shore up LNG supplies, and have already engaged in negotiations with Qatar in recent weeks over boosting supplies.
According to Reuters, some already-scheduled LNG cargoes sent by Japanese companies will arrive in Europe in February, with more cargoes including those to be diverted to Europe on the request by the Japanese government arriving there in March
Exact numbers have not been disclosed, but there is an expectation of increased shipments over the next few months.
Japan’s biggest oil and gas explorer Inpex Corp will try to respond to the government request but it will not be easy as most of its LNG production is linked with long-term contracts, its chief executive Takayuki Ueda said.
“We are also receiving requests for extra supply from Japanese customers due to strong demand for the winter, which means our surplus supply is limited,” Ueda said
The rare move by resource-poor Japan does underline its intention to demonstrate that the country is aligned with the West.
“In the context of the international developments over Ukraine, we need to work with the G7 countries, especially with comrade countries who share our values,” Hagiuda said.
However, Nathan Piper, head of oil and gas research at Investec told Morning Wire that decisions to ship LNG will still be motivated by commercial realities.
He said : “In our view, LNG will seek out the highest price with Europe the most attractive destination. I do not believe Japan will send LNG volumes to Europe through any altruism but base on a commercial arrangement.”
While Europe has recently boosted LNG supplies to 75 per cent of its overall capacity, the continent would suffer from serious gas shortages if supplies from Russia were cut off due to sanctions or disruptions caused by conflict.
US President Joe Biden warned on Monday that if Russia invades Ukraine, the pipeline will not be approved by regulators, although the decision is out of the White House’s hands.
Earlier this month, Stifel warned that Europe and the UK could face quadrupling gas prices if supplies from Russia were paused, while Bruegel has suggested Europe only has the ability to temporarily offset Russian supply issues.
Currently, European Union (EU) relies on Russia for 40 per cent of its natural gas imports, and is currently weighing up whether to green-light the Nord Stream 2 pipeline which would double exports from Moscow to Germany.