Japan weighs steps for EU’s ban on insurance for Russia oil shipping
Japan will consider measures for the EU’s imposition of its ban on insuring and financing seaborne transport of Russian oil to third countries because it will make it difficult to maintain its imports of Russian crude oil, a Japanese government source told S&P Global Commodity Insights on June 7.
“We are scrutinizing the impact for the energy security, and if there is any impact, we will consider measures,” the source said, adding that the country’s pledged phase-out of Russian oil imports will be gradual while ensure its energy security.
The move by Tokyo comes as Brussels’ sixth sanctions against Russia published June 3 also includes prohibition of EU operators insuring and financing seaborne transport of Russian oil to third countries after a winddown period of six months.
Russia supplied 4% of Japan’s total crude imports of 2.48 million b/d in 2021, while the Middle East contributed to 92% of inflows, according to Ministry of Finance data.
Japan has a precedence of providing sovereignty guarantees for Iranian crude oil shipping in the face of the EU sanctions against Iran, having introduced a law in 2012 to compensate protection and indemnity cover per tanker carrying Iranian crude — a scheme that remains operational to date.
Japan suspended its Iranian oil imports in May 2019 after the US declined to extend its 180-day sanctions waiver beyond early May on Iranian oil imports.
The EU’s sixth sanctions package includes phasing out Russian crude imports in six months, and other refined products in eight months.
The sanctions were effective immediately but include transition periods and some temporary exemptions, the EU said in a statement.
Japanese refiners are already phasing out their imports of Russian crude oil, with the country’s top two refiners ENEOS and Idemitsu Kosan having already suspended new Russian crude oil import contracts.
Taiyo Oil, which relies on Russia for 20%-30% of its crude procurement, has suspended signing new Russian crude oil import contracts and is working to reduce its term lifting volumes for January-December 2022 from contracts signed prior to Russia’s invasion of Ukraine, a company spokesperson told S&P Global Commodity Insights on May 10.
Japanese stakeholders also receive Sokol crude oil from the Sakhalin 1 project, corresponding to their stakes, and sell their equity crude in the market, according to a Japanese stakeholder.
Japan has repeatedly said it will remain committed to keep the country’s interests in the Sakhalin 1 and 2 projects in Russia as the supply contributes to a stable and affordable energy supply in the long term.
Japan’s Sakhalin Oil and Gas Development Co., or SODECO, has a 30% stake in the Sakhalin 1 project. The Ministry of Economy, Trade and Industry has a 50% stake in SODECO while Japan Petroleum Exploration holds a 15.285% interest, Itochu 14.456%, Marubeni 12.349%, INPEX 6.08%, and Itochu Oil Exploration 1.83%.
Japan’s Mitsui, at 12.5%, and Mitsubishi, 10%, also hold stakes in the Sakhalin 2 project. More than half of the 9.6 million mt/year LNG production capacity at the Sakhalin 2 project is committed to Japanese offtakers, and Sakhalin 2 LNG accounts for almost all of Japan’s LNG imports from Russia.
Japanese Prime Minister Fumio Kishida said May 9 that Japan will ban “in principle” Russian oil imports following the latest commitment by leaders of the G7.
G7 leaders agreed May 8 to phase out Russian energy, including oil, “in a timely and orderly fashion,” while ensuring “stable and sustainable global energy supplies and affordable prices for consumers.”
Tokyo’s move came a month after the government’s decision April 8 to ban Russian coal imports in phases as part of an earlier commitment by G7 nations.