Japan cannot do without the Russian oil and gas project Sakhalin-2

Japan cannot do without the Russian oil and gas project Sakhalin-2
The oil tanker

Pushed by a government concerned about winter energy supplies, Japanese trading houses Mitsubishi Corp. and Mitsui & Co. remain involved in the Sakhalin-2 oil and especially gas exploitation project in the Russian Far East. Mitsubishi confirmed this on Friday August 26, a few days after Mitsui.

The two companies will file an application to become shareholders of Sakhalin Energy, the entity created on August 5 by the Russian authorities, replacing the consortium Sakhalin Energy Investment (SEI), in which Mitsui held 10% and Mitsubishi 12.5%. Majority shareholder in SEI, the Russian energy giant Gazprom should obtain 50% of the new operator. The other partner in the project, the British group Shell, announced at the end of February its intention to withdraw and sell its 27.5% stake.

The maintenance of Mitsubishi and Mitsui in Sakhalin-2 coincides with the announcements by the eight Japanese buyers of liquefied natural gas (LNG) from these fields of Piltun-Astokhskoye and Lunskoye, off the northeast coast of the island of Sakhalin, the renewal of their purchase contracts on terms similar to the previous ones.

A project “extremely important for energy security”

Most had ten-year or even twenty-year agreements, and some are very dependent on them. Some 50% of the LNG purchased by Hiroshima Gas comes from Sakhalin-2. JERA, a joint venture created by the electricity companies of Tokyo (Tepco) and Chubu, is however the leading importer. Its contract covers the supply of 2 million tonnes of LNG per year until 2029.

And 60% of the 10 million tons of gas extracted in Sakhalin are bought by the Japanese, which covers nearly 10% of Japanese needs. The Archipelago imports 97.8% of its LNG; 60% goes to the production of electricity; 30% are used for city gas.

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Hence the government pressure to maintain engagement in Sakhalin-2, after the unilateral decision taken on June 30 by Moscow to take full control of it. Japan imposed sanctions on Russia after Ukraine attack, but still ruled out exiting project “extremely important for energy security” of the Archipelago, explained the Prime Minister, Fumio Kishida. At the end of July, the Minister of Economy, Koichi Hagiuda, explained that he had “obtained understanding” of the United States on this subject.

As soon as Sakhalin Energy was founded on August 5, Mr. Hagiuda called on Mitsubishi and Mitsui to “consider positively” their retention in the project. The minister even promised government support. “The public and private sectors will work together to protect the interests of Japanese companies and ensure stable LNG supply. »

The pressure is high as winter approaches

The pressure is strong as winter approaches, while LNG prices are rising in Northeast Asia, reaching, on Friday, for delivery in October, 70.50 dollars (70.90 euros) per million British thermal units (MMBtu, an Anglo-Saxon unit of energy), up 23.7%, compared to tariffs for deliveries in September. This price is well above the December 2021 record of $48 per MMBtu.

“LNG imports into Northeast Asia are expected to increase during the month of September. It is possible that prices will rise considerably once winter comes”explains Ryhana Rasidi, LNG specialist at the Kpler analysis center.

The situation promises to be so critical in Japan that Tokyo has been considering, since July, the introduction of legislation to reduce city gas consumption, similar to the existing mechanism for saving electricity.

The Ministry of the Economy could ask families and businesses to reduce city gas consumption with or without quantified targets, in the event of a serious shortage of supply. For electricity, such an order legally obliges consumers, mainly businesses, to save money. Offenders are liable to a fine of up to 1 million yen (7,310 euros).

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