Japan needs to be pragmatic and realistic about its energy procurement and not rush into departing from key Russian liquefied natural gas projects, a senior politician in the ruling Liberal Democratic Party has said.
Hiroshige Seko, a former minister of economy, trade and industry, said that Japan had long been investing in Russian oil and gas projects even before commercial discoveries were made.
The Japanese government and Japanese companies own stakes in oil and liquefied natural gas projects such as Sakhalin 1 and Sakhalin 2 from which Western partners including Shell and ExxonMobil are pulling out in response to Russia’s incursion into Ukraine.
"If we exit from Sakhalin 1 and 2 projects, supply would be disrupted while countries like China that are desperate for LNG would get it cheaply,” Seko said, considering the investments that Japanese companies had already made.
“We need to be pragmatic,” Nikkei Asia reported the ex-minister as saying on a television programme on Japan’s public broadcaster NHK.
Many Japanese utilities procure volumes from Russian oil and gas projects and the future of such term deals could be in doubt if Japanese investors and partners pull the plug, especially if Chinese companies were to fill their shoes.
"There's a possibility we may impose further sanctions [against Russian interests], which could have ramifications for the energy sector through financial institutions involved with transactions,” added Seko.
However, he cautioned that sanctions imposed on Russia’s energy sector could have a “big impact” on the livelihoods of ordinary Japanese and the government would therefore have to seek the understanding of its people “for the sake of solidarity with Ukraine”.
The Sakhalin 2 project in Russia’s Far East can produce some 11.5 million tonnes per - annum of LNG – around 4% of global supply. It has term supply contracts with Japanese companies including Tokyo Electric Power (Tepco), Tokyo Gas, Kyushu Electric Power, Chubu Electric Power, Toho Gas, Osaka Gas and Hiroshima Gas, while non-spot volumes are also sold to China and South Korea.
The Sakhalin 2 consortium comprises Russia’s Gazprom on 50% (plus one share), Shell with 27.5% (minus one share), while Japanese companies Mitsui and Mitsubishi respectively have 12.5% and 10% stakes.
Meanwhile, Sakhalin 1 operator ExxonMobil (it has a 30% interest) last week announced it would be walking away from that oil and gas project that has Russian, Japanese and Indian co-venturers.
Sanctions against Moscow - such as freezing assets, banning exports of high-tech goods and excluding some Russian banks from the SWIFT international payments network are already having a major impact, noted Seko.
The Tokyo administration last Thursday decided to freeze the assets of four more Russian banks from 2 April, taking to seven the number of such financial institutions it has slapped with such sanctions, reported Reuters.
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