EU seeks extra LNG from Japan, hedging against Russia cutoff

The European Commission has approached the Japanese government about sending additional liquefied natural gas to hedge against a possible retaliatory cutoff of supply from Russia following Moscow’s invasion of Ukraine, Nikkei has learned.

This infusion would be on top of the LNG that Japan agreed to deliver to Europe in March. The European Union and Japan are expected soon to discuss supplies that are delivered after March, according to a source close to Tokyo.

Japan, a major importer of LNG, is expected to accommodate the EU if surplus supplies beyond domestic needs are available. To that end, Tokyo plans to survey domestic companies that trade in the commodity.

Europe imports 40% of its natural gas from Russia. Following Russia’s military invasion of Ukraine, there is growing concern that Moscow will tighten gas supplies in response to the economic sanctions levied against it by the European nations, the U.S. and Japan.

European demand for gas will decrease by half in May compared with January owing to warmer weather. If the E.U. can secure alternative supplies through April, Russian gas would be less effective as a diplomatic bargaining chip.

Japan has already agreed to send hundreds of thousands of tons of LNG to Europe in response to a request by U.S. President Joe Biden. Koichi Hagiuda, Japan’s minister of economy, trade and industry, said on Feb. 9 that the LNG tankers would arrive in Europe in March.

“We’ve asked companies to consider responding as much as possible in April and later as they monitor the situation,” said Hagiuda.

Yet the LNG being sent in March is equivalent to only a small percentage of the volume of gas supplied to Europe by Gazprom, Russia’s state-controlled energy company. Japanese cooperation alone would not suffice to fully mitigate the Russian risk.

And Japan also depends on Russia, importing 8% of its LNG from the country. No disruption of supplies from Russia has occurred to date, and none is anticipated. If Russia does suspend deliveries of its LNG, then Japan would reportedly be unable to send excess supplies to Europe.

Source: Nekkei Asia