Japan Watching for Any Impact on LNG From New Russia Sanctions

(Bloomberg) — Tokyo will closely monitor the rollout of new US sanctions on Moscow for any impact on shipments of liquefied natural gas from Russia’s Far East, a key source of supply for Japan.

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A week ago, the Biden administration imposed aggressive penalties on Russian energy, including restrictions on vessels that export oil from the Sakhalin-2 project just north of Japan. If those curbs end up halting crude production from the site, the gas that’s pumped out at the same time may be at risk.

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Japan is a big LNG buyer and sourced about 8% of its imports from Sakhalin-2 last year, according to ship-tracking data compiled by Bloomberg.

“We’ll discuss with the relevant stakeholders” to ensure Japan gets the gas it needs, Shinichi Sasayama, the president of major importer Tokyo Gas Co., said Thursday. “It might require more investigation to determine how much impact this will actually have. I wouldn’t say there is no impact whatsoever.”

One of Sakhalin-2’s three production platforms, Lunskaya, pumps both natural gas and gas condensate, a light version of crude oil, and the two fuels are then separated onshore. If curbs on exporting the oil lead to a buildup of crude on site, that may eventually prompt a halt in output, affecting gas in the process.

“If oil and condensate shipments really stopped, then at some point — when the storage facilities were full — gas production would also have to halt as it’s impossible to produce gas without producing condensate,” said Sergey Vakulenko, an oil industry veteran who spent part of his career at Sakhalin-2.

The US sanctions do not extend to the actual oil and gas from the development, just to the tankers needed to export the crude. Oil shipments are unlikely to cease immediately since the restrictions allow for a wind-down period. Ultimately, Lunskaya’s continued operation will depend on Russia’s ability to find other vessels — possibly from its growing shadow fleet — to replace the sanctioned ships.

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Complicating any replacement is the fact that the three shuttle tankers used by Sakhalin-2 have specialized bow loading equipment that allows them to take cargoes from the terminal. Such apparatus is not standard on oil tankers.

With daily gas production of a little over 50 million cubic meters, Lunskaya is the main source of supply to Sakhalin-2’s liquefaction plant. It also pumps 50,000 barrels of liquids a day, which equates to about two tanker-loads a month. The two other platforms produce oil and deliver their output separately.

Mitsubishi Corp., a partner in the Sakhalin-2 project, said it’s aware of the new sanctions and is reviewing the details. The company, as well as other part-owner Mitsui & Co., referred all questions regarding output to Sakhalin Energy, the venture’s operator, which didn’t respond to a request for comment.

—With assistance from Tsuyoshi Inajima, Stephen Stapczynski and Julian Lee.

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