Published by Global Banking & Finance Review®
Posted on December 11, 2024
6 min readLast updated: January 27, 2026
Japan is shifting from Russian LNG to alternative suppliers due to geopolitical pressures and a focus on cleaner energy, with contracts expiring soon.
By Katya Golubkova and Yuka Obayashi
TOKYO (Reuters) - As Japan's long-term contracts to secure liquefied natural gas (LNG) from Russia's Sakhalin-2 project near expiration, rival producers see opportunity to fill the supply gap, even as Tokyo looks to switch to cleaner energy, industry insiders say.
The country's declining demand for gas plus geopolitical pressure on Tokyo to curb its reliance on fuels from Russia mean Japanese buyers may not want to renew all of their contracts with a supplier long favoured for its proximity and reliability.
Japan, the world's second biggest liquefied natural gas (LNG) buyer, depends on Russia for 9% of its LNG, or 6 million metric tons per year, 5 million of which come from the long-term contracts at Sakhalin-2 run by the Kremlin-controlled Gazprom.
The project also has strong ties with Japanese industry, with trading giants Mitsui and Mitsubishi owning a combined 22.5% in the project.
Sakhalin-2's big advantage over rivals is that it is located just a few days away from Japan by sea. By comparison, shipments from Australia, Canada and the U.S. are more than a week away.
But with Japan's western allies seeking to isolate Moscow over its war on Ukraine, Sakhalin-2 is out of favour, though the project is exempt from U.S. sanctions.
"Maintaining the same level of supply from Russia may prove challenging due to the agreement among G7 members to reduce reliance on Russian energy," an official at Japan's industry ministry said, adding that final decisions rest with buyers, which include several Japanese utilities. The source could not be named due to the sensitivity of the issue.
At the same time, with Japan's sluggish power demand and its push towards cleaner energy, the need for LNG is set to fall. Tokyo wants gas to make up 20% of the country's power generation by 2030, down from 33% last year, and renewables to grow to 38% from 26% over the same period.
"There is a lot of renewable energy produced in our region, so the question of whether to renew the contract or not will depend on future renewable energy capacity," an executive at one of the Sakhalin-2 buyers from Japan told Reuters.
Japan's long-term pacts for Sakhalin-2 will expire between 2026 and 2033, starting with top power generator JERA's 0.5 million ton annual supply agreement.
RIVAL SUPPLY
Since Russia's 2022 invasion of Ukraine triggered fresh sanctions, Japanese buyers have increased reliance on allies such as the United States and Australia, as well as Malaysia and Oman, securing equity in LNG projects and long-term supply.
Rivals to Russian LNG are looking to build on that. Supplies from new projects in Alaska and western Canada are well-positioned, only a few days further away than Sakhalin and with less geopolitical risk.
U.S. Senator Dan Sullivan of Alaska has visited Japan and South Korea four times in the last two years to pitch the yet-to-be-developed Alaska LNG project to Asian buyers, meeting in August with Japanese government officials including then-Prime Minister Fumio Kishida.
"This remarkable resource is a strategic asset, not just for the U.S. and Alaska, but for our allies in Asia. It will help us immensely in fending off an aggressive CCP (Chinese Communist Party) and get our allies in Japan and Korea off of Russian gas," he told Reuters by email.
President-elect Donald Trump, meanwhile, is preparing to approve export permits for new LNG projects that had been halted under the Biden administration, sources told Reuters.
In May, the Business Council of Canada, an advocacy group, opened a new office in Japan.
"One of the top markets we are looking at is LNG," said special adviser Heather Exner-Pirot, citing the opportunity to displace Russian supplies as Canada prepares to start LNG exports, including to Japan, next year through the Shell-led LNG Canada project.
Two smaller LNG projects are due to start operating in 2027 and 2028.
Canadian gas companies are in talks with Japanese firms to supply more LNG, with production set to begin not far behind the expiration of the Sakhalin-2 contracts, an industry source said.
Australia's Woodside Energy also sees opportunity to beef up LNG sales to Japan, including from the U.S., Chief Executive Meg O'Neill has said, as it already has strong ties to Japanese companies.
UNCERTAIN BUYERS AND SUPPLY
While those LNG developers court Japan, there is uncertainty over new Russian contracts as Sakhalin-2's main gas field, Lunskoye, nears depletion. Stable production is expected only until 2033, Russian news agency Interfax reported in June, citing Gazprom.
Gazprom has bet on developing the Yuzhno-Kirinshoe offshore field nearby, but the U.S. imposed sanctions on it in 2015. The field was initially expected to start producing in 2021 but Gazprom secured a drilling platform for its first well only in July.
Japan has locked in LNG supply to meet demand through 2030, said Daisuke Harada, a research director at the state-owned Japan Organization for Metals and Energy Security (JOGMEC).
"However, there is a possibility that in the early 2030s there could be an LNG shortage ... so some companies don't necessarily need to renew their contracts (with Sakhalin-2), while some may have no choice but to do so," he said.
JERA President Hisahide Okuda said in late November that it had not yet made a decision on whether to renew its Sakhalin-2 contracts, but a company source told Reuters that the project's proximity to Japan is a key attraction.
"If we can buy without impact of any sanctions we will continue to source it for energy security," the source said, declining to be named due to the sensitivity of the matter.
The Sakhalin-2 project plays "a very important role in Japan's energy security", Japan's industry ministry, or METI, said by email, noting that global LNG supplies are expected to be tight. It declined to comment on specific contracts.
Sakhalin-2's project operator, Sakhalin Energy, and Gazprom did not reply to requests for comment. Mitsui and Mitsubishi declined to comment.
Japan is increasingly active in trading LNG - it traded 38.3 million tons in the previous fiscal year, or six times the volume it buys from Russia - giving it the flexibility to divert cargoes to the domestic market.
"Buyers can allow Sakhalin-2 contracts to expire without impairing Japan's energy security," said Christopher Doleman, LNG specialist at the Institute for Energy Economics and Financial Analysis.
But utilities still prefer the cheapest source of gas.
Yumiko Yao, an LNG executive with Tokyo Gas, which has a 1.1 million tons per annum contract with Sakhalin-2 expiring in 2031, said the utility has a social responsibility to serve their customers.
"If we stop buying from Russia, we have to buy from other places which could have a higher price. If we, as a country, stop entirely buying from Russia, I think it is going to have a huge effect on our customers," she said.
(Reporting by Katya Golubkova and Yuka Obayashi in Tokyo, Emily Chow in Singapore and Nia Williams in British Columbia; Editing by Tony Munroe and Sonali Paul)
The article discusses Japan's transition from Russian LNG to alternative suppliers due to geopolitical pressures and energy policy shifts.
Japan is reducing reliance due to geopolitical tensions and a strategic shift towards cleaner energy sources.
Potential suppliers include the United States, Canada, and Australia, offering less geopolitical risk.
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