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For Japan and Russia, A New Year’s Toast to Closer Energy Ties

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It’s chilly outside (in the Northern Hemisphere), but Japan and Russia are cozying up with a series of recent LNG deals that could usher in a new decade of ever-warmer energy ties between the two countries.

Late last month, Nikkei Asian Review reported that a Japanese consortium made up of leading sōgō shōsha (integrated conglomerates) Itochu and Marubeni, Japan Petroleum Exploration (JAPEX), as well as Japan’s Ministry of Economy, Trade and Industry (METI) had agreed to the terms of a new Russia-based LNG project.

Co-investors in the project will include Exxon Mobil, Russia’s state-controlled oil giant Rosneft, and Sakhalin Oil and Gas Development. The new venture would broaden the existing Sakhalin-1 oil field—in which the Japanese consortium (known as Sodeco) already holds a 30 percent stake—to add 6.2 million tons of LNG production to the project’s existing crude output.

Potential deal value has been estimated at JPY 1 trillion, or just over $9 billion. Production is expected to begin in 2027.

Arctic thaw

The end-of-year deal marks the latest in a series of conspicuous energy collabs between Japan and Russia. Earlier in the fall, Japan’s Arctic LNG consortium, which includes the Japanese government’s Oil, Gas and Metals National Corporation (JOGMEC) and sōgō shōsha Mitsui, struck one of the largest-ever Japanese-Russian joint ventures by announcing that it would acquire a 10 percent stake in the $21 billion Arctic LNG-2 project led by Russia’s second-largest gas producer, Novatek. Arctic LNG-2 is slated to begin production in 2023, with 80 percent of its LNG output bound for Asian markets.

In September, Novatek and Japan’s Mitsui O.S.K. Lines (MOL) reportedly reached a separate agreement whereby Japanese icebreaking tankers would transport Russian LNG along the Eurasian Arctic coastline to floating storage units that in turn will transfer the gas to conventional gas carriers in the Russian port cities of Kamchatka and Murmansk. A final decision from MOL on investment in the project, whose costs have been estimated at up to JPY 160 billion (nearly $1.5 billion) is expected this year.

Per Nikkei, the new venture marks Russia’s third co-investment just in LNG with Japan, which—despite recent inroads by China—remains the world’s largest importer of the liquefied gas.

Geopolitical hedge

Following last September’s drone attack on Saudi oil production facilities, Japan’s private and public sectors announced that they would ramp up global LNG investments by an additional $10 billion. The plans are aimed at diversifying the country’s energy import dependency away from politically volatile Middle East markets and toward producers of LNG, which are more globally dispersed. Middle Eastern countries account for 20% of net LNG global exports, compared to 60% of global net exports of crude oil.

Meanwhile, the Financial Times recently reported that Japanese government bodies METI and JOGMEC are expected to clinch the lead investment—possibly 15-20 percent of the total project—in Rosneft’s $157 billion Vostok oil development in the Arctic region.

The nascent decade looks certain to be a pivotal one for Japanese energy security. According to a Reuters report, citing sources within Japan’s industry ministry, the country is ambitiously aiming for 40 percent self-sufficiency in oil and gas by 2030, up from 29.6 precent in 2018.

Russia is likely more than ready to assist. According to figures from the International Trade Centre (ITC) and reported in The Diplomat, raw energy materials already account for more than two-thirds of Japan’s total imports from Russia.

Source: https://investableuniverse.com

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