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Japan’s buyers of Russian LNG are currently assessing how changes to shipping insurance triggered by the ongoing war in Ukraine will affect supplies from the key Sakhalin-2 project in Russia’s Far East, Bloomberg has reported. Japanese insurance companies Tokio Marine Holdings Inc., Sompo Holdings Inc., and MS&AD Insurance Group Holdings Inc. will cease providing cover for marine hull war risks in Russian, Ukrainian, and Belarusian territorial waters from Jan. 1, 2023.
Japan has warned that global competition for liquefied natural gas is set to intensify over the next three years due to an underinvestment in supply.
A survey of Japanese companies conducted by the trade ministry and released on Monday found that long-term LNG contracts that start before 2026 are already sold out, which is worrying for LNG buyers because these types of contracts offer stable pricing and reliable supply for many years. The report notes that there is little new supply coming online before 2026, even from major exporters like the U.S. and Qatar. Meanwhile, Europe is desperately trying to replace Russian pipeline gas with LNG, further exacerbating the global shortage of fuel
This is not the first time insurance-related problems have occurred as a result of Russia’s invasion of Ukraine. Turkey sparked an oil tanker traffic jam in early December when it started requiring ships hauling oil through the Bosphorus and the nearby Dardanelles strait to provide a letter from their insurer saying that cover will be provided for that specific vessel voyage and cargo. At one point, the change caused a traffic jam of 28 tankers.
While Turkey and the insurance company eventually came to an agreement that solved the issue, prices were initially impacted due to uncertainty.
By Alex Kimani for Oilprice.com
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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.