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

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

Prompted by a government concerned about winter power supplies, Japanese trading houses Mitsubishi Corp. and Mitsui & Co. continue to be involved in the Sakhalin-2 oil and especially gas project in the Russian Far East. Mitsubishi confirmed it on Friday, August 26, a few days after Mitsui.

The two companies will submit an application to become shareholders of Sakhalin Energy, the entity created on August 5 by the Russian authorities, to replace the Sakhalin Energy Investment (SEI) consortium, in which Mitsui had 10% and Mitsubishi 12. 5%. Majority shareholder of SEI, the Russian energy giant Gazprom should take over 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 of the eight Japanese buyers of liquefied natural gas (LNG) of these fields of Piltun-Astokhskoye and Lunskoye, off the northeast coast of the island of Sakhalin, of the renewal of their sales contracts in terms similar to the previous ones.

A project “extremely important for energy security”

Most had contracts of ten or even twenty years, and some rely heavily on them. About 50% of the LNG purchased by Hiroshima Gas comes from Sakhalin-2. JERA, a joint venture created by the Tokyo Electric Companies (Tepco) and Chubu, is however the main importer. Its contract contemplates the supply of 2 million tons of LNG per year until 2029.

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

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Hence the pressure from the government to maintain participation 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 the attack on Ukraine, but still ruled out the exit project “extremely important for energy security” of the Archipelago, explained the Prime Minister, Fumio Kishida. At the end of July, the Economy Minister, Koichi Hagiuda, explained that he had “understanding gained” of the United States on this subject.

As soon as Sakhalin Energy was founded on August 5, Mr. Hagiuda asked Mitsubishi and Mitsui to “regard positively” their permanence 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 a stable supply of LNG. »

Pressure is high as winter approaches

The pressure is strong as winter approaches, as LNG prices rise in Northeast Asia, reaching $70.50 (€70.90) per million British thermal units on Friday for October delivery. MMBtu, an Anglo-Saxon unit of energy), 23.7% more than the rates for shipments 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. Prices are likely to go up considerably once winter hits.”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 the city’s gas consumption, similar to the existing mechanism to save electricity.

The Ministry of Economy could ask families and companies to reduce the consumption of city gas with or without quantified objectives, in the event of a serious supply shortage. In the case of electricity, an order of this type legally obliges consumers, mainly companies, to save money. Violators are subject to a fine of up to 1 million yen (7,310 euros).

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