February 7, 2023

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Japan does not see a future without Russian gas

Japan does not see a future without Russian gas

Gas production site south of Sakhalin Island.Statue of Yuri Smitok / Getty

Japan will not get any oil or gas from Russia and will not participate in the Sakhalin 2 LNG project. With this possibility, the former Russian President and former Prime Minister Dmitry Medvedev recently terrified Japan. The main buyer of Russian gas from East Asia is already suffering from tight energy supplies. To make matters worse now, Tokyo sees billions of investments in gas and oil fields in the Siberian Sakhalin region evaporating. This Russian island is located a few kilometers from the northernmost point of Japan.

Japan’s sanctions against Russia are in line with European and US sanctions, except for energy. Japan is banning new investment in Russia’s LNG sector and boycotting Russian coal, but the Russian oil shutdown is more difficult and the Russian gas spigot is keeping Japan open. Leaving gas extraction on Sakhalin, where Japanese companies hold a 22.5 percent minority stake, is out of the question.

Japan, which has hardly any fossil fuels, goes out like a candle without imported energy. After the oil crisis of the 1970s, Japan switched to nuclear power and liquefied natural gas (LNG). LNG became dominant after the tsunami and subsequent nuclear disaster at Fukushima in 2011, when nuclear power was lost Nuclear disaster in Fukushima became less popular. With 24 percent of LNG in the energy mix, Japan is the third largest importer of LNG worldwide. Over 9 percent of this comes from Russia, mostly from Sakhalin.

There is no major Russian gas project without the inclusion of the Japanese. The Japan Development Bank and Mitsui Trading House are already losing money on Arctic LNG2, a Russian Arctic gas project that will supply European and Asian gas markets with LNG from 2023 by ship via the Northern Sea Route. Because machine parts are more difficult to obtain due to international sanctions and Europe wants to get rid of Russian gas, this future is doubtful.

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Japan is now threatening to run out of gas on Sakhalin amid Russian anger over a plan by the Group of Seven – the club of rich industrial nations – to cap the price of Russian fossil fuels. Such an international price ceiling gives sanctions against Russia more leverage, according to Kishida in a recent speech, because Russia earns less from oil and gas exports.

Last week Moscow raised its thumbs by transferring Sakhalin 2, which is entirely dedicated to gas extraction, to a new owner. Foreign companies in the Sakhalin Gas Consortium such as seashells And Mitsui, they must decide within a month whether they want to keep their shares in the new ownership structure. Then they have to ask permission from the Russian government. The alternative is to sell interest.

For Shell, which has 27.5 percent of shareholders, this is not a difficult decision: even though the Sakhalin 2 project accounts for 4 percent of the global LNG market, Has Shell already said it will pull out?. Mitsui and Mitsubishi, the two Japanese companies that own 12.5 percent and 10 percent respectively of Sakhalin 2, know nothing about it, because more than half of the gas extracted there goes to Japan.

The association with Sakhalin goes so far that Japan’s Economy Minister Hagiuda Koichi said in May that Japanese shareholders would not give up even if the Russian government demanded their departure. Kishida hastily stated that Putin’s Sakhalin decree does not change long-term agreements on gas supplies. Medvedev helped him get out of the dream.

37 degrees in Tokyo

Sakhalin is the last straw for Japan, which has already noticed that its oil and gas supplies have not been doing well during the recent heat wave. To prevent people from succumbing to the hottest temperatures recorded by Japanese meteorologists in the past 147 years, air conditioners were allowed to stay on. But escalators at train stations and park lights have been turned off and factories have switched to shorter working days.

This inconvenience is dwarfed by future energy problems if Russian gas actually runs out. In addition, Japan has another compelling reason not to sell its stake in Sakhalin: China, Russia’s partner and main competitor and competitor, Japan. Chinese state energy companies are very excited about Japan’s wake in Russian gas projects: They already have a 20 percent stake in Arctic LNG2, and they are eager to bridge the gap that Japan’s exit from Sakhalin will leave. This is a great opportunity for China to get ahead of Japan for nothing.

And the fact that it is about Sakhalin, with which Japan has special historical ties, is especially sensitive. From 1905 to 1945 Sakhalin was part or all of a Japanese colony under the name Karafuto, in which Japan conducted exploratory oil drilling. After Japan lost in World War II, the northern half of Sakhalin went to the Soviet Union. Moscow and Tokyo are still at odds over a nearby group of islands, the Kuril Islands.

However, Japan has spent decades trying to improve relations with Russia and does not want to hand over its carefully built interests in gas and oil extraction to the Chinese. Even as the Russians press for Japan’s exit from Sakhalin, Tokyo will cling to Russian gas, albeit with the courage of desperation.