Asian Buyers Surprised by Russia’s Announcement of Gas Payments in Rubles

The announcement by Russian President Vladimir Putin that he will charge “hostile” countries for oil in rubles has surprised buyers in Asia who are trying to understand how the change would work in practice.

The Russian president announced on Wednesday that gas would continue to be supplied to “hostile” countries “in the agreed volume and at the agreed prices… stipulated in concluded contracts.”

Russia has compiled a list of “hostile” countries, corresponding to those that have imposed sanctions on it due to the invasion of Ukraine. The list includes the USA, EU member states, Britain, Japan, Canada, Norway, Singapore, South Korea, Switzerland, and Ukraine.

The Russian president has given the government and the central bank a week to make the necessary preparations, stating that he will instruct gas producer Gazprom to make the appropriate amendments to contracts.

Japan, South Korea, and Taiwan are included on the list and import liquefied natural gas (LNG) from the Sakhalin-2 and Yamal LNG plants in eastern Russia.

Japan, the largest importer of Russian LNG in Asia, has no idea how Russia plans to implement this requirement.

– We are currently analyzing the situation with the relevant ministries as we do not quite understand what the intentions (of Russia) are and how they plan to implement (the announcement) – said Japanese Finance Minister Shunichi Suzuki.

Japan imported 6.84 million tons of LNG from Russia last year, accounting for nearly nine percent of its liquefied gas imports, according to Refinitiv data.

The largest Japanese LNG buyer, JERA, has not received any notification from Sakhalin Energy, the company established by Gazprom, Shell, Japan’s Mitsubishi Corporation, and Mitsui & Co to manage the Sakhalin-2 liquefied gas plant, a company spokesperson said.

Gazprom holds half of the ownership stake in Sakhalin Energy, Shell 27.5 percent, and the remainder is owned by Mitsui & Co and Mitsubishi Corp. Shell announced on February 28 that it would exit the project, and the Japanese government emphasized that its move does not affect Japanese energy imports.

Tokyo Gas and Osaka Gas, the two largest gas suppliers in Japan, are also trying to find out more detailed information about the Russian announcement, their company spokespersons said on Thursday.

Details are being sought

South Korea, the third-largest importer of Russian LNG in Asia, expects to continue importing, and the Financial Services Commission emphasizes that it will do everything necessary to facilitate trade.

Korea Gas Corp (KOGAS) stated that it imports two million tons of Russian LNG annually, which accounts for about six percent of its imports. They also emphasize that they do not trade directly with Russia as they have contracted with Sakhalin Energy, and they pay for the gas through a Japanese bank in Singapore.

Taiwan’s Ministry of Economic Affairs stated that a shipment of gas from Russia is expected to arrive at the state-owned CPC Corp at the end of the month. They also add that they have not yet received “information about the adjustment of the payment system.”

Russia’s inclusion of Taiwan on the list of “hostile countries” has surprised some as it could be seen as recognition of independence and could cause problems in relations with China, which considers it its territory.

When asked by a Japanese journalist how he comments on the Russian list, Chinese Foreign Minister Zhao Lijian said that “Russia is a sovereign state that has the right to make its own decisions.”