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Japan exit from Sakhalin LNG would let China swoop in: ex-minister

  • March 6, 2022
  • , Nikkei Asia , 12:33 p.m.
  • English Press
  • ,

KEN MORIYASU, Nikkei staff writer

 

TOKYO — Japan needs to be pragmatic about its energy procurement and think twice about leaving a Russian natural gas project, a senior politician in the ruling Liberal Democratic Party said on Sunday.

 

Hiroshige Seko, the party’s upper house secretary general and a longtime minister for economy, trade and industry, said that Japan has been investing for years in the Sakhalin-1 and Sakhalin-2 offshore oil and gas developments, “even before we knew if there was gas or not.”

 

“If we leave now, there are countries like China who desperately want liquified natural gas. Those countries will take the gas for cheap. We need to be pragmatic,” he said on a Sunday morning program on NHK, Japan’s public broadcaster.

 

Seko’s words come after Shell said it will exit all oil and gas projects involving Russian state-owned energy giant Gazprom in response to the invasion of Ukraine. This includes Sakhalin-2, which Shell has been advancing with Japanese trading houses Mitsui & Co. and Mitsubishi Corp.

 

Shell holds a 27.5% interest in Sakhalin-2, while Gazprom owns 50%. Mitsui and Mitsubishi control 12.5% and 10%, respectively. All eyes are on whether the Japanese groups will follow Shell in severing their Russian ties.

 

Hiroshige Seko, Japan’s former minister for economy, trade and industry, speaks on NHK on March 6.
 

A source at Mitsui told Nikkei Asia that the issue is too big for a private company to decide on its own, and ultimately the call will have to come from the government.

 

LNG is Japan’s biggest import from Russia. Sakhalin-2 can produce about 10 million tons of LNG per year, equivalent to more than 10% of Japan’s annual imports.

 

Seko noted that Europe has excluded energy from its Russia sanctions and that a White House fact sheet also said that the U.S. and its allies do not have a strategic interest in reducing the global supply of energy.

 

“Both Europe and the U.S. have taken a pragmatic approach,” he said. “Many local Japanese gas companies procure from the Sakhalin project and they could face supply disruptions” if Japan left.

 

China is the world’s largest LNG consumer. The Sakhalin project’s proximity makes it appealing for East Asian countries, and Japan has been investing heavily there to reduce dependence on the Middle East. Whereas shipments can take more than two weeks from Qatar and three weeks from the U.S. to reach East Asia, LNG carriers from Sakhalin can arrive in days.

 

Last Monday, the board of Shell announced the company will exit its joint ventures with Gazprom and related entities, including its stake in the Sakhalin-2 LNG facility. Chief executive Ben van Beurden said in a statement: “Our decision to exit is one we take with conviction. We cannot — and we will not — stand by.”

 

At the end of 2021, Shell had around $3 billion in non-current assets in ventures in Russia, the company said in a press release. “We expect that the decision to start the process of exiting joint ventures with Gazprom and related entities will impact the book value of Shell’s Russia assets and lead to impairments,” it added.

 

ExxonMobil, the operator of the Sakhalin-1 project on behalf of an international consortium of Japanese, Indian and Russian companies, also announced on Tuesday that it is discontinuing operations and will quit the project.

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