Japan asked to leave a share in Sakhalin – 2 to its companies

Tokyo sees no alternative to a joint project with Russia

The Japanese government asks the national companies Mitsui and Mitsubishi to keep their participation in the Sakhalin-2 project. This was stated by the Minister of Economy of the Land of the Rising Sun Koichi Hagiuda. This news confirms a simple and old truth: under no circumstances does Tokyo intend to part with a project that has no alternative for it, which provides the country with stable supplies of relatively inexpensive raw materials.

According to Koichi Hagiuda, he has already personally addressed the head of Mitsui with a corresponding request, and in the near future he will talk on this issue with Mitsubishi management. In fact, the official gave an official response to the decree of the Russian government of August 3 on the creation of Sakhalin Energy, which will be a purely Russian legal entity and will become the new operator of Sakhalin – 2 instead of the current Sakhalin Energy, in which Mitsui and Mitsubishi own 12.5 % and 10% of shares (Gazprom holds a controlling stake). Within a month, foreign shareholders had to agree to accept shares in the new LLC in proportion to the shares in the old company. Another foreign participant in the project, the British Shell (27.5%), announced at the end of February that it was withdrawing from Sakhalin-2.

As part of the Sakhalin-2 project, two oil and gas fields are being developed in the northeast of the Sakhalin shelf – Piltun-Astokhskoye (oil) and Lunskoye (gas). The infrastructure includes three offshore drilling platforms, an onshore processing facility, an oil export terminal and a natural gas liquefaction plant with a design capacity of 9.6 million tons per year. Tokyo has repeatedly stated the importance of the project, which gives the country almost 10% of the total inflow of liquefied “blue fuel”. Long-term contracts for the supply of LNG from Sakhalin-2 have been concluded with a number of Japanese energy companies until 2033. So, with Hiroshima Gas the contract is valid from 2008 to 2028, with Tokyo Gas – from 2009 to 2031, with Toho Gas – from 2009 to 2033.

“The Japanese have one peculiarity: they look at the project for a long time, study the prospects. But if they have already entered it, it is extremely difficult for them to leave. Although the West insists on this,” says Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation. – Tokyo has no alternative to Sakhalin-2, since the transit of LNG from the Russian island to Japanese territory takes no more than a day. The contracts were signed at the time of the project launch and are of a preferential nature, prices for Japan are among the lowest against the backdrop of total LNG imports into the country.” If Tokyo parted ways with Sakhalin-2, it would have to buy LNG from other suppliers on the spot market under short-term contracts. There, according to Yushkov, the prices are much higher, as well as the risks associated with the stability and efficiency of deliveries.

“For Japanese companies, investments in the project paid off long ago, they are not ready to lose such a highly profitable asset,” notes Alexei Grivach, deputy director of the National Energy Security Fund. “If the contracts are terminated, the energy security of the country will suffer, since it is physically impossible to replace Russian gas with spot supplies.”

In the opinion of the head of the Center for Energy Development Kirill Melnikov, the states of Asia, even among the “unfriendly”, are generally more rational in their approach to anti-Russian sanctions than the collective West. For them, the main thing is to minimize their own losses. For Japan, it is obvious that a break with Sakhalin-2 will strengthen the position of China, which will not miss the chance to become a shareholder and buyer of Sakhalin gas. Tokyo has before its eyes the fate of the Yuzhno-Kirinskoye field: gas from it was originally intended for the expansion of Sakhalin-2, but after falling under US sanctions in 2015, Gazprom decided to send raw materials through a gas pipeline to China. In turn, BitRiver financial analyst Vladislav Antonov recalls that due to the energy crisis in Europe, summer LNG prices in Asia have increased almost tenfold in recent years. And if Mitsui and Mitsubishi refuse to participate in the project, then Sakhalin gas will be redirected to the Asian continent, mainly to China.

“Japan is known for its pragmatism, its economic interests traditionally take precedence over political reasons,” says Mark Goykhman, chief analyst at TeleTrade. — The Sakhalin-2 project provides LNG supplies to the Land of the Rising Sun at prices half that on the spot market in Asia. Plus, these are income from the investments themselves, jobs, orders for Japanese equipment manufacturers. From a purely economic point of view, it does not matter at all who the project operator is, even if it is a Russian company. For Mitsui and Mitsubishi there is no point in parting with Sakhalin-2. Moreover, the government itself directly asks them not to do this.”

Meanwhile, in Germany, which is located at the other pole of Moscow’s geopolitical confrontation with “unfriendly countries” and many of whose companies also refused to do business with Russian partners, are reporting a steadily growing volume of trade with our state. Despite the European Union’s embargo on coal, gold, steel and vodka, bilateral trade is gaining momentum, driven by high gas prices. According to Die Welt, Berlin paid €3.5 billion for Russian “blue fuel” in June, which is 5% more than in May, and compared with June 2021, the profit from the sale of this type of raw material increased by 39%.