Japan is to divert some of its supplies of liquefied natural gas to Europe in an effort to soothe fears that a Russian invasion of Ukraine will disrupt gas supplies to the continent.
The deal, announced by industry minister Koichi Hagiuda on Wednesday in response to a request from the US, is intended as a symbol of solidarity with western allies over the conflict in Ukraine.
Rahm Emanuel, the US ambassador to Japan, said the country’s “assistance to Europe” showed how closely Washington and Tokyo were working “with like-minded partners to deter Russian aggression against Ukraine, and uphold our shared values”.
Several carriers, each carrying at least 70,000 tonnes of LNG, are already on their way to Europe and due to arrive this month according to officials at Japan’s ministry of trade, economy and industry.
More ships will head to the continent in March and April. But energy analysts say the deliveries are unlikely to make much difference to Europe’s energy security because of the continent’s huge energy needs.
Although Japan was, until last year, the world’s biggest importer of LNG, its energy companies, trading houses and electricity producers maintain reserves amounting to only two to three weeks’ worth of demand. However, officials said the request for LNG had been made on the understanding that Japan could handle a draw on its surplus.
“This has never happened before, and it is extremely unusual for Japan to be asked to comply with such a request because the country is both a consumer and importer of gas,” said trade ministry official Takeshi Soda on Wednesday, adding that LNG imported under long-term contracts without fixed buyers will be the main target for the diversion to Europe.
Representatives of Japan’s biggest energy companies said the move could produce a unique arbitrage situation if gas bought cheaply on long-term contracts was sold to Europe at much higher prevailing market prices.
Energy companies contacted by the Financial Times said that, while it was unclear exactly what rules would apply under an emergency situation, it was theoretically possible that Japanese companies would now be selling LNG to Europe at far higher prices than they had paid.
All companies involved in the talks said that any energy supplies previously bought for domestic utilities or that would impact Japan’s energy stability were off-limits. Some said there was some excess gas previously purchased by the energy companies at spot prices for emergencies that could also be easily resold to Europe.
“Every long-term contract has to be honoured but as long as the buyers have their demands met hypothetically it is possible to use the gas bought on long-term contracts for this purpose,” said an official at one of the energy companies involved in the talks.
Energy analysts said that, at $25.3/mmbtu, the current benchmark index of Asian LNG prices for March delivery was around 78 per cent higher than the average price of LNG that arrived in Japan on long-term contracts in December.
Japanese officials said the trade ministry had been conducting discussions with companies with interests in natural gas since the end of January.
Takayuki Ueda, the chief executive of Japan’s largest oil and gas explorer Inpex, told reporters on Wednesday the company would try to respond to the request but cautioned it would not be easy as most of its LNG production was linked with long-term contracts with buyers in Japan and Taiwan.
The world’s largest LNG buyer and Japan’s biggest power generator, Jera, as well as Inpex, both confirmed they had been approached by the government to consider what levels of surplus capacity they had available to export to Europe.
People close to the situation said Japan’s largest trading houses — a group that includes Mitsui, Mitsubishi and Marubeni — had either been contacted or would be in the coming days.