By Oka Daisuke and Takechi Hironori
Japan Bank for International Cooperation (JBIC), a government-affiliated financial institution, announced on Dec. 1 that it has signed an agreement with Chinese and Russian banks to co-finance the “Arctic LNG 2” liquified natural gas (LNG) project led by major Russian gas company Novatech. Sumitomo Mitsui Banking Corporation is also participating in financing, according to those familiar with the matter. The public and private sectors are cooperating to diversify procurement routes for LNG, an important resource for Japan. The outlook for the project is becoming more uncertain due to growing criticism of fossil fuels, including LNG.
According to Novatek, the contract is dated Nov. 30, for financing a maximum of 9.5 billion euros (about 1.2 trillion yen). JBIC announced that it will finance up to 1.71 billion euros (about 220 billion yen). According to insiders, Sumitomo Mitsui Banking Corporation’s amount of financing is on the order of tens of billions of yen.
Arctic LNG 2 is a joint venture led by Novatek, with plans to build a mining facility on the Gydan Peninsula in the Arctic Circle and produce up to 19.8 million tons of LNG per year from 2023. Japan’s Mitsui & Co., Ltd. and the Japan Oil, Gas and Metals National Corporation (JOGMEC) will obtain a 10% interest.
Natural gas emits less carbon dioxide when burned than coal. Japan positions natural gas as an important “low-carbon” energy source. Europe has begun to pay close attention to natural gas, in addition to coal. In October 2021, the European Union (EU) advocated the creation of an international framework to not develop fossil fuels in the Arctic Circle or buy fuels produced in the area. Italian, German, and French financial institutions withdrew from financing the Arctic LNG 2 project.
Sumitomo Mitsui Banking Corporation also considered withdrawing, but decided to make a loan after being approached by the Ministry of Economy, Trade and Industry (METI). JBIC, a government-affiliated company, must in principle co-finance projects with private institutions. State support for the project has become more prominent because the investments of government-affiliated institutions have come to exceed those of the private sector.
In addition to these “environmental risks,” there are “geopolitical risks” associated with Arctic LNG 2, such as the fact that a Novatek executive is the subject of U.S. sanctions against Russia amid the conflict between the two countries.