The Japan News by The Yomiuri Shimbun
Japan keeps Sakhalin interests, wary of China taking over
Despite Russia’s ongoing invasion of Ukraine, the Japanese government intends for the time being to maintain its interests in energy projects in the Russian Far East island of Sakhalin.
If Japan were to withdraw from the island, the government believes China would be the likely nation to take over the interests, e ectively undermining the sanctions imposed on Russia.
It will be di cult to regain oil and gas interests once they have been relinquished, so Tokyo aims to avoid creating a situation where the cost of procuring energy increases and is added onto electricity and gas bills.
During the International Energy Agency’s two-day ministerial meeting in Paris through March 24, participants discussed ways to reduce dependence on Russian crude oil and natural gas.
“We con rmed that each country will do what they can under di erent circumstances,” said Economy, Trade and Industry Minister Koichi Hagiuda.
e United States and the United Kingdom, which are less dependent on Russian energy, are making their stance clear on severing ties with Russia. Exxon Mobil of the United States, which held a stake in the Sakhalin 1 energy development project, and Britain’s Shell, which held a stake in the Sakhalin 2 project, have announced their withdrawal. Japanese companies continue to participate in both projects.
Germany, on the other hand, which relies on Russia for half of its natural gas imports through pipelines, is among the countries that intend to continue imports for the time being.
While Japan with its very limited natural resources agrees with the policy of reducing dependence on Russia over
the medium to long term, it is di cult to immediately make a shi .
From the Sakhalin 2 project, Hiroshima Gas Co. imports about 50% of its lique ed natural gas and Toho Gas Co. about 20% of its LNG, so any disruption in the supply would have a signi cant impact on their businesses.
“Obviously, we need to consider reducing our dependence [on Russia],” said Japan Gas Association Chairman Takehiro Honjo, who is also chairman of Osaka Gas Co. “But I can’t come up with any names [of alternative suppliers] right away.”
Russia has been trying to intimidate “unfriendly” countries such as Japan,
the United States and several in Europe by demanding payment in rubles for natural gas purchases. However, if Japan withdraws from the Sakhalin 2 project, the cost of procuring LNG will increase, which could lead to higher electricity and gas bills using it as an energy source.
“Japan would have no choice but to procure energy on the spot market to compensate for the decrease, resulting in an annual cost increase of more than ¥1 trillion on the Japanese side,” estimated Prof. Masahiko Hosokawa of Meisei University, an expert on energy.
BITTER LESSON
Japan had been the world’s largest
LNG importer, until China took the top spot in 2021. China is shi ing away from coal in an e ort to decarbonize the country by increasing power generation using natural gas, which has relatively low carbon dioxide emissions.
In an e ort to expand China’s supply sources, Chinese companies have invested in the Arctic LNG 2 project in which Japan is also participating. In 2019, China began importing natural gas from Russia via pipeline.
“China’s economy requires an enormous amount of energy to sustain itself,” said Homare Endo, director of the Global Research Institute on Chinese Issues. “China must have a strong desire for Japan’s interests.”
Japan’s reluctance to withdraw from the Sakhalin projects perhaps shows it is learning its lesson from a bitter experience.
In 2010, Inpex Corp., which is partially owned by the Japanese government, withdrew from the development of the Azadegan oil eld in southwestern Iran, one of the largest oil reserves in the Middle East. e Japanese side was forced to make a di cult decision because of the fear that it would not be able to receive loans from U.S. nancial institutions if it were subject to sanctions imposed on Iran by the U.S. government.
e Japanese side had already invested ¥12.5 billion in the project but returned its 10% stake in the project to the National Iranian Oil Company without charge. e stake was then transferred to state-owned China National Petroleum Corp.
“Sakhalin is an important project for Japan’s energy security,” a Japanese government source said. “If Japan were to give up its interests and then to have China take them, only Japan will su er damage.” (March 28)