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By Yuka Obayashi
TOKYO (Reuters) - Japan, the world's top liquefied natural gas (LNG) importer, is facing its latest challenge in securing vital gas supplies from Russia after Western reinsurers said they would halt marine war insurance for ships travelling in Russian waters from Jan. 1.
Having joined other G7 countries in imposing sweeping sanctions on Moscow for the invasion of Ukraine, Japan has been reducing its reliance on Russian oil and coal, but it continues to buy Russian LNG amid elevated prices in a tight global market as Europe ramps up imports.
WHICH COMPANIES ARE AFFECTED?
Japan's Tokio Marine & Nichido Fire Insurance, Sompo Japan Insurance and Mitsui Sumitomo Insurance told shipowners last week that from Jan. 1 they would stop offering insurance coverage for ship damage caused by war in Russian waters, because reinsurers were withdrawing coverage. Without the war insurance, shippers such as Mitsui OSK Lines and Nippon Yusen might have to halt operations in Russian waters, including loading LNG from the Sakhalin-2 complex in Russia's Far East, industry sources said. Japan receives 9% of its imported LNG from Sakhalin-2, which is owned by Gazprom and Japanese trading houses.
Loss of supply from Sakhalin-2 could send Japanese power and gas utilities such as JERA and Tokyo Gas Co Ltd scrambling for alternatives.
The country has already faced repeated challenges in securing gas supplies since Russia sent its armed forces into Ukraine in February. It has had to persuade G7 partners to give it leeway so it could keep importing Russian LNG, and after the Russian government decided in June to seize control of Sakhalin-2, Japanese trading houses had to agree to remain as shareholders of the new Russian operator.
WHAT ACTIONS HAVE BEEN TAKEN?
To avoid supply disruption, the three Japanese insurers are negotiating with various reinsurers to retain the war coverage.
In a rare joint letter, Japan's Financial Services Agency and Agency for Natural Resources and Energy have also asked insurers to take on additional risks to continue providing marine war insurance for shippers transporting LNG from the Sakhalin-2.
"The top priority now is to secure marine war insurance," a senior official at the industry ministry said.
It is still unclear whether the insurers can secure sufficient reinsurance, especially at a time when many Western counterparts are away on holidays.
WHAT ARE THE OTHER OPTIONS?
Shipowners may continue operations without the war coverage by shouldering the risks, since voyages between Sakhalin island and Japan are short, taking just a few days, and since the LNG export facility is located far from the battlefields of Russia and Ukraine.