JERA signs new deal with Russia for LNG deliveries

Japan’s JERA has signed a deal with the new operator of the Sakhalin-2 energy project in Russia to maintain long-term deliveries of liquefied natural gas (LNG).

Russian President Vladimir Putin signed a decree in June taking charge of the project, creating a new legal entity to deal with for buyers and shareholders, which include Shell and Japanese trading houses Mitsui & Co and Mitsubishi Corp.

For resource-poor Japan, Sakhalin-2 is important for its energy security. It buys about 9% of its LNG from Russia, mainly from Sakhalin-2.

The buyers, in general, want to keep their Russian LNG contracts as sourcing alternative supply on the spot market would mean paying higher prices.

Japanese buyers paid $13.27 per million British thermal units (mmBtu) for Russian LNG in June while the average spot cargo price for delivery to Japan was $23.30, according to state-owned Japan Oil, Gas and Metals National Corp (JOGMEC).

Asian spot LNG prices hit a record high of $57 per mmBtu this month as Japanese and South Korean buyers secured supply for winter, narrowing the price differential with Europe where there is renewed appetite for the fuel in the wake of lower Russian piped supply.