The oil and gas industry has read much recently about the difficulties of dealing with Russia. But now, it seems, someone has finally gotten Moscow’s number.
That view emerged last week with reports that the Russian government would be seeking financial and technological assistance from Japan to build a pipeline and LNG export terminal for its Sakhalin-1 project.
An official at Japan’s ministry of foreign affairs confirmed that Russia is seeking help in constructing a pipeline from Sakhalin to Vladivostok, site of a future LNG export terminal.
Total costs for construction of the pipeline and export terminal are estimated at 500 billion yen, and Russian Prime Minister Vladimir Putin is expected to propose launching full-scale talks for assistance when he visits Japan in May.
Financing sought
One pipeline already connects Sakhalin Island to Khabarovsk on the Russian mainland, and the Japanese government—via the Japan Bank for International Cooperation—is considering financing the planned extension of the pipeline from Khabarovsk to Vladivostok.
Japan has in interest in acquiring gas from Sakhalin-1, where reserves are estimated at 485 billion cu m, and the sailing distance from Vladivostok across the Sea of Japan is, well, not worth talking about.
Sakhalin-1’s gas reserves, at 485 billion cu m, are just slightly larger than the 480 billion cu m of the Sakhalin-2 project, which recently began exports. Reports say 60% of Sakhalin-2’s output is likely to be shipped to Japan, supplying some 8% of the nation’s needs.
Another 8% from Sakhlain-1 would be tempting.
At the moment, however, Russia plans to purchase all the gas produced from the Sakhalin 1 project, in which Japanese trading house Itochu Corp. and US oil major Exxon Mobil Corp. own stakes, and export it to Japan and elsewhere.
Japanese wary
That could be tempting to Japan, except for that tiny reference to “elsewhere.” Where could that be? Well, as you might imagine, the most likely location is China—Japan’s historic rival and current chief competitor for sources of energy.
The Japanese are well aware of that possibility. As one senior Japanese government official put it, Russia is more likely to seek bids for the construction of energy export infrastructure around Sakhalin Island from a variety of countries than to request help from any single country.
“Japan, South Korea, or China—whoever—would be fine for them, as long as they get a good deal,” said Shin Hosaka, oil and natural gas division director of Japan’s Agency for Natural Resources and Energy under the Ministry of Economy, Trade, and Industry.
Getting a good deal is the aim of business, and no one can fault the Russians for trying to do just that. What’s new in the Japanese outlook, however, is that the Russians are being eyed a bit more warily than before, i.e., with “caveat emptor.”