Partners in the Sakhalin-2 LNG export project are negotiating with underwriters to renew war risk terms for LNG shipments to Japan after reinsurers said they will introduce a Russian exclusion clause from 1 January.
According to local reports, Sakhalin-2 underwriters Tokio Marine & Nichido Fire Insurance, Sompo Japan Insurance and Mitsui Sumitomo Insurance have told shipowners they can no longer provide war risk cover for the project from 1 January.
The move comes after their reinsurers said they will apply an exclusion clause to Russian exposures when the policies renew next year.
The Sakhalin-2 project is mainly reinsured in the London market.
Sakhalin-2 has been operated by Sakhalin Energy since June to comply with international sanctions.
The Japanese government has stepped in to ask Japanese underwriters to find a solution amid fears of a potential energy crisis if the supplies stop.
Around 9.6m tonnes of LNG is exported from Sakhalin-2 annually to eight Japanese power and electric companies. The project represents around 9% of Japan’s LNG imports.
One solution could include finding reinsurance cover outside London, according to news agency Reuters.
It is understood Japan’s leading gas, power and trading houses linked to the project have now stepped in to try to find insurance capacity to cover the project.
The whole of Russia was designated a high-risk area by the London-based Joint War Committee earlier this year.
War risk is required as an additional layer of insurance above hull and machinery, cargo and protection and indemnity polices in high-risk areas.
War risk underwriters reinsure most of the financial exposure in the international reinsurance markets.
TradeWinds earlier reported how the reinsurers' retreat from Russian risk had already forced protection and indemnity insurers to introduce exclusion clauses to their fixed premium cover.
Leading reinsurers are attempting to protect against further losses from Russia after facing costly litigation from claims related to leased aircraft which have become trapped in the country during war.
The Russian claims are among a number of major losses suffered by reinsurers this year, the costliest of which is Hurricane Ian.
Japan’s NYK Line has committed two LNG carriers to the Sakhalin-2 project, the 14,700-cbm Grand Elena (built 2007) and the 14,700-cbm Grand Aniva (built 2008). Mitsui OSK Lines and K Line jointly operate the 14,700-cbm Grand Mereya (built 2008) on the trade.
There are additional concerns over whether the Russian exclusion clause introduced by reinsurers will affect coal and other exports to Japan. As the exclusions also include the Black Sea area there could be an additional impact on oil and grain exports.