An LNG (liquefied natural gas) tanker is seen behind a port in Yokohama, south of Tokyo, Japan, September 4, 2015. REUTERS/Yuya Shino

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TOKYO, March 10 (Reuters) – Resource-poor Japan relies heavily on fossil fuel imports to meet its energy needs, complicating calls to boycott Russian oil and liquefied natural gas (LNG) after the invasion of Ukraine by Moscow.

Here’s what’s at stake:

WHAT IS JAPAN’S ENERGY MIX AND WHY IS LNG SO IMPORTANT?

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Japan derives most of its primary energy needs from crude oil, more than 90% of which comes from the Middle East, according to government data. LNG represents approximately 24% of the total energy mix.

But LNG takes a bigger slice of the power generation pie, at 36%. That reliance has grown since 2011, when most of Japan’s nuclear facilities were inactive after the massive earthquake and tsunami that triggered meltdowns at a power plant in Fukushima, northern Japan.

HOW DOES JAPAN USE LNG AND WHERE DOES IT COME FROM?

Until overtaken by China last year, Japan was the world’s largest importer of LNG, accounting for about 22% of the total market, according to the US Energy Information Administration. LNG supply is primarily used in power generation, but is also used for heating and cooking in most residential households.

Top sources of Japan’s energy products imports by market share in 2021

Australia was the largest LNG supplier with 36% of Japan’s imports last year, followed by Malaysia with 14%. Russia represents 9%, like the United States.

Since Russia accounts for less than 10% of Japan’s LNG supply, it could likely substitute that supply with other sources. But that would only aggravate a global price spike, as demand for non-Russian gas rises while supply shrinks.

LNG spot prices in Asia recently hit a record high of over $59 per million British thermal units (mmBtu), from less than $3 per mmBtu before the onset of the COVID-19 pandemic.

Japan has more leeway with its crude oil supplies. The country’s major refiners have said they would be able to find replacements in the global spot market in the event of disruptions to Russian crude, as it accounts for less than 4% of their total imports.

Japan also held 480 million barrels, or 240 days of oil reserves in domestic and private stockpiles in December 2021. But there are only two to three weeks of LNG inventories because Japan does not have underground storage facilities, as is common in Europe. , and long-term storage is not possible due to evaporation.

WHAT DO HIGHER LNG PRICES MEAN FOR THE ECONOMY AND THE BOJ?

The effect is already being felt in Japanese households in the form of increased electricity bills. The spike in costs also comes on top of inflationary pressures that have been compounded in Japan by the supply chain disruption caused by the coronavirus pandemic.

So far, Bank of Japan Governor Haruhiko Kuroda has ruled out a tightening of monetary policy to deal with these pressures. Read more

For Prime Minister Fumio Kishida, rising consumer energy prices could impact government popularity ahead of critical Upper House elections this summer, according to James DJ Brown, professor of political science at the ‘Temple University.

WHICH JAPANESE COMPANIES INVEST IN RUSSIAN LNG?

Trading houses Mitsui & Co (8031.T) and Mitsubishi Corp (8058.T) have stakes in the Sakhalin-2 project in eastern Russia. Mitsui also has a stake in the $21 billion Arctic LNG 2 project, which is expected to launch in 2023.

Sakhalin Oil and Gas Development (SODECO), a consortium including Itochu Corp (8001.T) and Marubeni Corp, is part of the Sakhalin-1 project. In turn, the Japanese government itself has invested billions of dollars in these projects in the form of loans.

CAN’T JAPAN JUST RESTART ITS NUCLEAR REACTORS?

Increasingly, Japan is doing just that. The power of nuclear power plants fell to almost zero in 2014 following the Fukushima disaster, but now accounts for around 3% of total energy production. The government wants to increase this figure to 20%-22% by 2030, although many market watchers believe this pace is unachievable.

Only six reactors are currently operating, compared to 54 before the Fukushima disaster. Many more are still going through a license renewal process under stricter security standards.

Accelerating a nuclear restart could be Japan’s “best option” to offset fuel shortages, lawmaker Itsunori Onodera told Reuters on Tuesday.

In perhaps another sign of that change, the government said this week it would forgo an official memorial to the March 11 nuclear disaster for the first time since it happened in 2011.

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Reporting by Rocky Swift and Yuka Obayashi; Editing by Kenneth Maxwell

Our standards: The Thomson Reuters Trust Principles.