Japan's JERA Pens New LNG deal with Russia's Sakhalin-2

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), a spokesperson for the country's biggest power generator said on Friday.

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.

Japanese gas and electric utilities with long-term contracts to buy LNG from Sakhalin-2 have received a new contract offer from the newly formed operator. 

"The main conditions such as volume, price and (payment) currency remained the same as the previous contract," the JERA spokesperson told Reuters, though he did not provide further detail.

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.

Other Japanese buyers are still considering whether or not to continue doing business with Sakhalin 2. 

Kyushu Electric Power is leaning toward maintaining its long-term contract, a spokesperson said. 

Tokyo Gas said it was still considering the matter while Saibu Gas Holdings and Tohoku Electric Power said they were assessing details of the contract. 

Toho Gas, Hiroshima Gas and Osaka Gas declined to comment.

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. 

(Reuters - Reporting by Yuka Obayashi; Editing by Christian Schmollinger)

Related Stories