As Japan’s long-term contracts to import liquefied natural gas (LNG) from Russia’s Sakhalin-2 project are set to expire, rival producers are taking advantage of the opportunity to fill the supply gap for Tokyo, Reuters reported. Industry experts say that as Japan moves toward cleaner energy, demand for LNG from Russia is also declining.
Japan is currently the world's second-largest LNG importer, relying on Russia for about 9% of its LNG consumption, or 6 million tons per year. Of that, 5 million tons are supplied through long-term contracts with Sakhalin-2, a project controlled by Russian gas giant Gazprom.
Sakhalin-2's strength is its favorable geographical location, just a few days' shipping from Japan, compared to more than a week from countries like Australia, Canada or the United States.
However, geopolitical pressure from Western allies and a strategy to reduce dependence on Russian energy have forced Japan to consider extending its contracts with Sakhalin-2.
In addition, with stagnant electricity demand and a strategy to increase renewable energy, Tokyo plans to reduce the share of LNG in power generation from 33% last year to 20% by 2030.
Japan's long-term contracts for Sakhalin-2 will expire between 2026 and 2033, starting with a 0.5 million tonne annual supply deal from top power generator JERA.
After Russia launched a military campaign in Ukraine in 2022 and faced sanctions, Japan increased LNG imports from allies such as the US, Australia, Malaysia and Oman to secure long-term contracts.
Russian LNG rivals from Alaska (USA) and Canada are planning to supply LNG to Japan, with new projects approaching the expiration of Sakhalin-2 contracts.
US Senator Dan Sullivan of Alaska has visited Japan and South Korea four times in the past two years to pitch the yet-to-be-developed Alaska LNG project to Asian buyers. In August, Sullivan met with Japanese government officials, including then-Prime Minister Fumio Kishida.
“This remarkable resource is a strategic asset, not only for the United States and Alaska, but also for our allies in Asia. It will help us greatly in helping our allies in Japan and South Korea get off Russian gas,” he told Reuters.
Meanwhile, President-elect Donald Trump is preparing to approve export licenses for new LNG projects, which had been halted under the administration of President Joe Biden.
