Japan has addressed the provision of insurance coverage for the transportation of crude oil, petroleum products, and liquefied natural gas (LNG) with the approval of a bill on October 13. This bill is part of measures designed to enhance energy supply security in response to recent developments in the Middle East.
Development of Insurance Coverage
According to a senior official from the Ministry of Economy, Trade and Industry, this bill includes the provision of P&I insurance coverage and compensation for part of the insurance costs for cargo and hull insurance of vessels. The Ministry of Infrastructure, Transport and Tourism is also reviewing the current law on designated tankers, which only included crude oil, and its scope will be expanded to include petroleum products such as naphtha and LNG.
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These measures are being taken in response to the current situation in the Middle East and to ensure a stable energy supply to Japan. According to the ministry official, the government will launch a program to compensate part of the insurance costs for non-life insurance companies to cover losses under marine property insurance, including cargo and hull insurance.
New Mechanism for Energy Supply
The responsible official also stated: "If foreign insurance companies are unable to provide reinsurance coverage, there may be situations where cargo is available but cannot be transported." To address these conditions, the government will create a mechanism to fill the gap caused by the lack of foreign reinsurance coverage.
Japan introduced a law in 2012 that provides P&I insurance coverage as a government guarantee for any tanker transporting Iranian crude oil. This measure remains in effect, although Japan suspended imports of Iranian oil in May 2019.
The Japan P&I Club, officially known as the Association of Mutual Insurers of Japanese Shipowners, provides insurance coverage of up to approximately $9.8 billion for each tanker.
METI Minister, Ryuichi Akazawa, stated on October 13: "The cabinet ministry approved three bills: one bill regarding the optimization of the use of designated maritime routes to ensure the sustainable transportation of crude oil and other petroleum products, a bill on special measures to ensure the execution of specific cargo insurance contracts and specific ship insurance contracts, and a bill for minor amendments to the law on the Japan Metals and Energy Security Organization."
He added: "Given the structural changes in the global energy landscape, including the recent situation in the Middle East, it is essential to strengthen the resilience of Japan's energy supply and demand structure. Through these three bills, our goal is to fundamentally improve supply stability by diversifying sources of crude oil and other fossil fuels and reducing associated risks."
The approval of these bills follows the formulation of Japan's energy policy package on August 26, led by Prime Minister Sanae Takaiichi, aimed at strengthening the resilience of the country's energy supply and demand system through green transformation initiatives (GX).
The first bill, which relates to optimizing the use of designated maritime routes for the sustainable transportation of crude oil and petroleum products, provides financial assistance to importers such as refiners, petrochemical producers, and trading companies. This financial assistance is granted to these companies when they procure crude oil and petroleum products from suppliers located outside the Strait of Hormuz region.
To receive this financial assistance, companies are required to develop a plan for optimizing designated maritime routes that specifies details such as supply targets, types of crude oil covered, transportation routes, and the duration of the plan. Once this plan is approved by the government, JOGMEC will provide financial assistance to cover related costs of supply diversification.
The official also referred to the bill amending the JOGMEC law, stating: "The recent situation in the Middle East has highlighted the importance of alternative pipelines in securing crude oil for Japan." This measure allows JOGMEC to provide equity investments and debt guarantees for pipelines that are not linked to specific oil and gas fields.
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