The Japanese government has urged the country’s Sakhalin Oil & Gas Development Company (Sodeco) to try to regain the 30% stake it held in the Sakahlin 1 project in Russia’s far east.
The advice followed months of deliberation by the Japanese government on the oil and gas project, where Russian authorities established a new operator — also named Sakhalin 1 — following pressure from regional authorities to resume production from the development.
Production from Sakhalin 1 halted in May, when then-operator Exxon Neftegaz — a regional subsidiary of US supermajor ExxonMobil — declared force majeure in response to international sanctions imposed on Russia following its invasion of Ukraine in February.
Japan’s Economy, Trade & Industry Minister Yasutoshi Nishimura told a news conference on Tuesday that Sakhalin 1 “is extremely important for Japan’s energy security as it is a valuable source outside of the Middle East”, Reuters reported.
Nishimura, who was appointed in August this year, has continued the line of his predecessor Koichi Hagiuda, who had argued against Japan joining the proposal form Western nations for a ban on Russian oil purchases that is due to come into force on 5 December.
“The Japanese government has decided to keep its stake in the (Sakhalin 1) project,” Nishimura said, revealing that he held a meeting with Sodeco on Monday and urged them to consider joining the new operator.
The Japanese government holds a 50% stake in Sodeco, while the remaining interest is split among Itochu, Marubeni, Japan Petroleum Exploration and Inpex.
In an interview with the UK’s Financial Times this week, Itochu chief executive Masahiro Okafuji argued that Japan is not in a position to cut off energy ties with Russia in order to fully support international sanctions.
“Unlike Europe or the US, Japan depends on overseas for almost all of its energy needs, so it is not possible to cut off ties with Russia because of the sanctions,” Okafuji said.
“In reality, we cannot survive unless we continue to import [oil] from Russia, even if the volumes are smaller.”
Before the shutdown in May, Sakhalin 1 produced at a rate of about 250,000 barrels per day of oil, with almost all of that output piped to the Russian mainland and exported to Asia via the De-Kastri terminal.
Russian oil purchases are estimated to have accounted for 3.6% of Japan’s total oil imports last year.
According to the Russian government, Sodeco — together with other foreign shareholders in Sakhalin 1, India’s ONGC Videsh and ExxonMobil — have to apply for permission to regain their former shareholdings in the project’s new operator before mid-November.
Until the structure of the news operator’s shareholders is finalised, a local company will manage the development.
However, neither local authorities nor the local management company have said when the transfer of the project’s assets, personnel and contracts to the new operator will be completed.
ExxonMobil said in early October that it had “safely exited” Russia and Sakhalin 1 after "failing to engage" with the Russian government and other shareholders on the fate of its 30% stake in the project.
ONGC Videsh, which held a 20% stake in Sakhalin 1, has not publicly commented on whether it plans to apply to regain its interest in the project, but a source close to the company suggested to Reuters that an application will be filed.
Restart issues
Local reports on Sakhalin suggested that oil production at the project’s three offshore fields — Arkutun-Dagi, Chaivo and Odoptu — has to be restored before the end of this year to avoid potential damage from subzero winter temperatures to pipelines and other infrastructure.
The project also needs to restart development drilling into oil reservoirs to maintain its output plateau, as the three deposits have been depleted after being in production for over 15 years, local reports suggested.
Sakhalin 1 operates two of world’s largest onshore drillings rigs, Krechet and Yastreb, which were built by US driller Parker Wellbore (formerly Parker Drilling) and are used spud extended reach wells from the shore into offshore reservoirs.
Parker Wellbore had not responded to Upstream’s request for clarification on its current exposure to the Sakhalin 1 project by the time of publishing.
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