Replacing LNG supplies from Russia's Sakhalin-2 would be costly, Japan says

By Ritsuko Shimizu

TOKYO (Reuters) -Liquefied natural gas supplies from Russia's Sakhalin-2 project play an "extremely important role" in Japan's energy security and replacing them would be costly and cause higher electricity prices, Japan's industry minister said on Thursday.

Ahead of U.S. President Donald Trump's visit to Japan next week, U.S. Treasury Secretary Scott Bessent has urged Tokyo to stop its Russian energy purchases, which mainly consist of LNG that accounts for 9% of Japan's imports of the fuel.

Ryosei Akazawa, a 64-year-old trade veteran appointed as minister of economy, trade and industry under new Prime Minister Sanae Takaichi, told reporters that Asia's LNG market was expected to be tight.

JAPAN'S SAKHALIN-2 CONTRACTS MOSTLY RUN TO 2028-2033

"If LNG is procured alternatively from this market (to replace Sakhalin-2 supply), the LNG procurement price will soar and the electricity price will bounce back," said Akazawa, who led recent Japan-U.S. trade talks that resulted in U.S. tariff reductions on imported goods from Japan.

Most of Japan's Sakhalin-2 LNG contracts expire between 2028 and 2033, and earlier termination would result in fines for Japanese buyers and force them to seek alternative supplies on the spot market, where options could be limited due to high competition.

Akazawa said he would like to cooperate with the Group of Seven and other parties to consider what is necessary for Japan's national interests. Japan covers most of its energy needs from imported fossil fuels.

While playing down political pressure, Japan signed new U.S. LNG purchase deals this year but stopped short of hard commitments to the $44-billion yet-to-be-built Alaska LNG project favored by Trump.

On Thursday, JERA, Japan's top power generator, said it would buy natural gas production assets in the U.S. for $1.5 billion, marking its entry into American shale gas production where a number of other Japanese companies are already present.

(Reporting by Ritsuko Shimizu. Writing by Katya Golubkova. Editing by Tomasz Janowski and Mark Potter)