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Japan’s JERA has signed an agreement with Russia to continue supplying LNG from the Sakhalin-2 project

Japan’s JERA has signed an agreement with the new operator of the Sakhalin-2 energy project in Russia to maintain long-term supplies of liquefied natural gas (LNG), a spokesman for Japan’s largest energy producer said today, Reuters reported.

Russian President Vladimir Putin signed a decree in June taking over the project, creating a new legal entity to deal with the buyers and shareholders, which include Shell and Japanese trading houses Mitsui & Co and Mitsubishi Corp.

Japanese natural gas and power companies with long-term contracts to buy liquefied natural gas from Sakhalin-2 received a new contract offer from the newly formed operator.

“The basic terms, such as volume, price and currency (of payment) remained the same as the previous contract,” a JERA spokesman told Reuters, without elaborating.

For energy-poor Japan, Sakhalin-2 is important for its energy security. It buys about 9% of its liquefied natural gas from Russia, mainly from Sakhalin-2.

Other Japanese buyers are still considering whether or not to continue dealing with Sakhalin-2. Kyushu Electric Power is leaning toward keeping its long-term contract, a spokesman said.

Tokyo Gas said it was still looking into the matter, while Saibu Gas Holdings and Tohoku Electric Power said they were evaluating the details of the contract. Toho Gas, Hiroshima Gas and Osaka Gas declined to comment.

Buyers generally want to keep Russian LNG contracts, as finding alternative supplies in 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-run 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 winter supply, narrowing the price gap with Europe, where there is renewed appetite for the fuel after a cut in of Russian supply through pipelines.

Source: Capital

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