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FOCUS: Russian politics could stir up Japanese-joined Arctic LNG project

  • July 9, 2019
  • , Jiji Press , 11:42 p.m.
  • English Press

Tokyo, July 9 (Jiji Press) — Japanese general trader Mitsui & Co. <8031> and government-backed Japan Oil, Gas and Metals National Corp., or JOGMEC, announced in late June plans to participate in a Russian-led Arctic liquefied natural gas project.

The move is expected to help reinforce energy security for Japan, which heavily relies on the Middle East for oil procurement.

However, the LNG project involves the risk of being shaken by the Russian government, especially at a time when Moscow is under Western sanctions, observers said.

The project is believed to strongly reflect the intentions of Russian President Vladimir Putin, who is eager to expand his country’s influence in the Arctic, surrounded by five countries including Russia and the United States.

In mid-June, a Japanese-operated oil tanker was attacked near the Strait of Hormuz, shedding fresh light on the need for Japan to reduce its energy dependence on the region.

The Middle East is responsible for 80 pct of Japan’s oil imports and 20 pct of its LNG imports.

“Strengthening ties with Russia, which holds the world’s largest natural gas reserve, is crucial for stable energy supply in Japan,” a Japanese government source said.

Mitsui and JOGMEC will jointly acquire an equity stake of 10 pct in the operator of the Arctic LNG 2 project, of which total costs are estimated at up to 2.5 trillion yen.

Mitsui has traumatic memories of its past participation in a Russian resources development project.

In 2007, Mitsui and Mitsubishi Corp. <8058>, another major Japanese trader, were forced to abandon half of their respective stakes in the Sakhalin 2 LNG project in waters off the Russian Far East, for environmental reasons, as claimed by the Russian side.

“Behind the development was the rise of resource nationalism in Russia,” said Izumi Sakaguchi, a contract researcher at the Institute for Russian & NIS Economic Studies.

There is no guarantee that a similar development will not occur in the Arctic project, observers said.

Meanwhile, the United States and its European allies imposed sanctions on Russia, following its annexation of Crimea in 2014. Due to the sanctions, U.S. oil major Exxon Mobile Corp. was forced to suspend a joint oil project with a Russian state-owned oil company.

Some believe the Arctic LNG 2 project could be included in the scope of the sanctions against Russia.

The Arctic project is a “deeply political matter,” said a Russia researcher. “It could be affected by a regime change, if any, or other events.”

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