TOKYO — Japan and France have stopped making new investments in a major liquefied natural gas development project in the Russian Arctic due to economic sanctions against Russia for its invasion of Ukraine, Nikkei has learned.
The freeze in financing for Arctic LNG 2, a $23 billion (2.7 trillion yen) development project, is the first known such case for a resource project in which Japanese companies hold an interest. Economic sanctions against Russia have barred financial institutions from sending the money required to finance the project.
The move may delay the start of its operations, slated for 2023, a development that will force Japan to review its LNG procurement strategy which is currently based on increasing imports from Russia.
Russian gas group Novatek holds a 60% stake in Arctic LNG 2, while Chinese companies have a 20% stake. French energy group Total Energies has a 10% stake, and Japan’s Mitsui & Co. and Japan Oil, Gas and Metals National Corporation (JOGMEC) have a combined stake of 10%.
“We are aware of the actions by our partner and are checking the facts, but we wish to refrain from commenting on individual cases,” a Mitsui spokesperson said.
Production is scheduled to begin in 2023 at 6.6 million tons per year, and is planned to increase to 19.8 million tons by 2026. By then, Japan is expected to be able to procure 10% of the project’s output, or 1.98 million tons. That is equal to about 3% of its annual imports in 2021 and 30% of its imports from Russia.
The European Union announced on March 15 that it would ban new investment in Russia’s energy sector as an additional sanction against Russia. The joint venture company between Mitsui and JOGMEC is located in the Netherlands and is unable to remit funds from the Netherlands to Russia, making it unable to meet the demand for funds. For now, the company will maintain its interests and will not withdraw from the project.
Total also announced a freeze on Arctic LNG 2 on March 22, saying that it would not provide funding in the future. The French group will also maintain its concession in the project. Even if decided to give up its interest, it is believed that it would not be able to find a buyer outside Russia. Total said this gives Russian investors an advantage and goes against the purpose of the sanctions.
Novatek has said the project was about 60% complete as of the end of 2021. The start of operations may be delayed if financing from Japan and France is delayed. To take the project forward, it would be necessary to take alternative measures, such as obtaining additional financing from financial institutions in Russia.