Yuka Obayashi and Heekyong Yan

TOKYO, Reuters – Asian gas importers were left scrambling after Russian President Vladimir Putin declared that “unfriendly” countries should pay in roubles for Russian gas. This is the latest jolt to world energy markets following Moscow’s invasion in Ukraine.

South Korea, Taiwan and Japan were all on the unfriendly list. All three countries import LNG from eastern Russia’s Sakhalin-2 or Yamal LNG plants.

Putin claimed Wednesday that Russia called its actions in Ukraine “special military opera”. Russia would supply gas to Ukraine in the same volumes as before, at fixed prices. However, payment will be made in Russian rubles.

Japan was the largest Asian importer for Russian LNG.

Shunichi Suzuki, Finance Minister, stated in Parliament that they are currently investigating the situation with the relevant ministries because we do not understand Russia’s intentions and would like to find out how they might achieve this.

According to data from Refinitiv, Japan imported nearly 9% of Russia’s LNG in 2021.

JERA, Japan’s largest LNG buyer has not been notified by Sakhalin Energy (the joint venture that runs Sakhalin-2), to alter the currency of payment. This was according to a spokesperson for the company. According to the spokesperson, Japan’s largest power generator will continue gathering information.

JERA, a thermal power and fuel joint venture of Tokyo Electric Power Company Holdings and Chubu Electric Power, purchases about 2,000,000 tonnes a Year (tpy), LNG from Sakhalin-2 in long-term contracts, according Japan Oil, Gas and Metals National Corporation’s data (JOGMEC).

Osaka Gas (the country’s largest gas supplier) and Tokyo Gas (the country’s biggest domestic suppliers) were both checking information on the rouble requirements, spokespersons for the companies said.

Tokyo Gas is Japan’s biggest LNG buyer. It declined to discuss details about its long-term contract with Sakhalin Energy for 1.1 Million Tpy.

Sakhalin Energy is 50% owned by Russia’s Gazprom (MCX:), with Shell (LON:) holding a 27.5% stake while the rest is held by Japan’s trading companies Mitsui & Co and Mitsubishi Corp. Shell stated on February 28 that they would be leaving the project. However, the Japanese government claims Shell’s withdrawal will not have any impact on Japan’s energy imports.

Their spokesmen stated that Mitsui as well Mitsubishi were reviewing details regarding Russia’s announcement.

Graphic: Asia’s Russian LNG imports: https://graphics.reuters.com/UKRAINE-CRISIS/RUSSIA-GAS-PUTIN/mopanbkoeva/chart.png

AUTOTHER BUYERS

South Korea, Asia’s third-largest exporter of Russian LNG, is expected to continue to import the product. According to the Financial Services Commission, it will facilitate trade wherever possible.

Korea Gas Corp (KOGAS), which imports Russian LNG at a rate of about 2,000,000 tpy, accounts for about 6%. KOGAS doesn’t transact with Russia directly as it has a Sakhalin Energy purchase contract. The gas is paid into a Japanese bank in Singapore.

A KOGAS official stated that “Since our payments are made to the Japanese bank, there aren’t currently any issues right now but we are closely watching the development.”

Taiwan’s Economy Ministry said that CPC Corp, a state-owned company, has one Russian gas shipment scheduled for the month.

They said that they have not received any news about the possibility of the payment system being adjusted.

Putin used the call to make payments in rubles as a way to try and shore up the currency, which had fallen after Russia’s sanctions were imposed.

Putin claimed that Russia’s government and central banks had only one week to find a solution to moving their operations into Russian currency. Gazprom will be required to adjust contracts accordingly.

According to Eswar Prasad (a Cornell University professor in trade policy), however, the Moscow move won’t work.

Prasad explained that “foreign importers would without doubt be pleased to pay for Russia’s exported goods in a currency which is falling in value”, although it might be difficult to access roubles to do so in a way that doesn’t fall under sanctions.

According to him, getting paid in Russian rubles will not secure Russia’s hard currencies needed to maintain its currency’s worth on international markets or to pay for other country imports.

Graphic: Global gas prices: https://fingfx.thomsonreuters.com/gfx/ce/lbvgnmgyzpq/Pasted%20image%201648088570088.png