Japan to seek alternative sources for crude oil

The Yomiuri Shimbun

7:00 JST, May 11, 2022

Japan will seek to procure crude oil from alternative sources, following its decision to ban imports of Russian crude in line with other Group of Seven industrialized nations.

Russian oil accounts for only a small portion of Japan’s crude oil imports — 3.6% of the total in 2021 — so the government judged that a ban on Russian oil imports, in principle, would not cause major problems in terms of domestic use. However, if other countries also try to secure alternative sources, it could lead to further increases in crude oil prices.

Almost all the crude oil used in Japan is produced overseas. In 2021, over 90% came from the Middle East.

The plan is to gradually reduce imports from Eastern Siberia, which accounts for about half of Russian oil in Japan, and then proceed with the embargo in stages, according to government sources.

Since Russia launched its invasion of Ukraine in February, domestic oil wholesalers have been seeking alternative sources for crude. Major wholesaler Eneos Holdings, Inc. has suspended new purchases of Russian oil, and the amount it had already contracted to buy has been received, the company said.

Japan also procures crude oil through the Sakhalin-1 and Sakhalin-2 energy development projects in Russia. Prime Minister Fumio Kishida has announced his intention to maintain Japan’s interests in these projects, and the government will discuss what measures should be taken regarding the projects.

Among the G7 nations, Japan was the last to announce its policy to ban Russian oil imports, after the European Union, including France, Germany and Italy, as well as the United States, Britain and Canada had already done so. Japan is believed to have sought to carefully assess the impact on its energy security, including its interests in the Sakhalin projects.

After the G7 nations announced their intentions to ban Russian oil, the price of U.S. crude oil futures temporarily rose to $110 per barrel on Monday.

“There will be fierce competition for oil,” Economy, Trade and Industry Minister Koichi Hagiuda told reporters on Monday. “It will be necessary to ask oil-producing countries to increase their output. We’ll deal with the situation while taking various factors into consideration.”

Crude oil prices have been kept down to a certain extent recently by the prospect that demand in China will decrease because of Beijing’s zero-COVID policy lockdowns.

“If no other measures to curb crude oil prices are implemented by the end of the year, the prices could rise further,” said Tatsufumi Okoshi, senior economist at Nomura Securities Co.