Japanese insurers have told shipowners that as of January 1, they will stop stop to provide insurance coverage for damage to ships caused by war in Russian waters. This announcement follows the withdrawal of reinsurers who are also withdrawing their coverage.
However, the withdrawal of insurers also concerns the coverage of liquefied natural gas (LNG) vessels. Therefore, the decision of the Japanese insurers increases the risks of Japan’s LNG supply. The Japanese government then asked insurers to take on additional risks. In particular, to continue to provide war insurance to LNG shippers.
After renegotiations with the British reinsurers, a total of 30 billion yen or $224 million should be secured. Domestic insurers cover about 8 billion yen. In addition, foreign reinsurers are assuming about 22 billion yen. The previous subscription capacity was 67 billion yen.
However, the new coverage does not cover all of Japan’s operations. Shipping companies will probably have to review their operations.
Maintaining war insurance is essential. The aim is to ensure that Japan can import LNG from the Sakhalin-2 gas and oil project in the Russian Far East at the height of winter demand. Japan wants to keep its LNG supply in the Russian Far East despite the sanctions against Russia.
Japan’s supply in danger following the nationalization of Sakhalin-2
The war in Ukraine led by Russia has had a strong impact on supplies to Japan, especially since the nationalization of Sakhalin-2. In June, Moscow signed a decree providing for the transfer of all shares in Sakhalin-2 to a new Russian company created by the State. Gazprom nevertheless retains its 50% share. While the foreign partners have one month to say if they want to take shares in the new company.
As a result, Mitsui & Co (12.5%) and Mitsubishi (10%) get the green light from Moscow and keep their participation in the project. Sakhalin-2 is a key issue for Japan, which imports 8% of its LNG from Russia.
In addition, Japan wishes to commit itself against climate change and reduce its dependence on fossil fuels. However, the country is struggling to compensate this reduction in energy production with cleaner sources. He also wants to give priority to nuclear power, but in a country traumatized by nuclear power, this is a difficult task.