With an ultimate objective of keeping China at bay, Japanese trading houses, Mitsui and Mitsubishi are not considering quitting Russia’s Sakhalin-2 project according to media reports.
The Sakhalin-2 project is focused on producing and shipping liquified natural gas (LNG), 60% of which is destined for the Japanese market.
Nikkei newspaper is said to have reported that the two trading giants will remain partners to the project, as “prompt exit is risky” and “will be in favour of China.” The paper cited documents submitted by the companies to the Ministry of Economy, Trade and Industry of Japan earlier this month.
The project has been one of the main sources of natural gas supply to Japan. Located on the Russian island of Sakhalin in the Pacific Ocean, north of Japan, the project reportedly produces nearly 11.5 million tons of LNG annually which is mainly exported to major markets in Asia.
The project, launched in 2009, includes the offshore Piltun-Astokhskoye oil field and Lunskoye natural gas field in the Okhotsk Sea, and associated infrastructure on Sakhalin Island itself.
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Sakhalin-2 is managed and operated by the Sakhalin Energy Investment Company. The majority stake in the enterprise belongs to Russia’s energy giant Gazprom. Shell, the world’s largest LNG trader, holds 27,5% minus one share, Mitsui’s share totals 12,5%, while Mitsubishi Corporation owns 10%.
On February 28, UK-based Shell announced plans to pull out its stake in the Sakhalin-2 liquefied natural gas facility, its 50% stake in the Salym Petroleum Development and the Gydan energy venture following sanctions placed on Moscow over the ongoing military operation in Ukraine.
According to Shell, Sakhalin-2 supplies about 4% of the world’s LNG market. Japan, South Korea, and China are the main customers for oil and LNG exports. The complex can produce around 10 million tonnes of LNG per year, equivalent to more than 10% of Japan’s yearly imports. Russia is the fifth-largest supplier of LNG to energy-short Japan.
Shell’s decision has put pressure on Japanese partners, Mitsubishi, and Mitsui, to reconsider their involvement in Sakhalin-2.
While the Japanese Prime Minister has left it up to individual companies to decide how to proceed with their businesses and Investments in Russia, the country’s political and business leaders are very much concerned about a third country swooping in to occupy the positions they vacate.
In preceding week, Japanese industry ministry Koichi voiced this concern in the Japanese parliament.
“Our main concern is whether a third country might immediately take over when we let go of our interests there.
“If Russia doesn’t feel the pain from the sanctions, then it would be pointless”
The Japanese seem very much aware that heavy Sanctions targeted at destroying the Russian economy could provide more opportunities for China.
Energy Voice recently reported that the escalating Moscow-Western tensions are speeding up Russia’s opening of its energy sector to Chinese investors.
For now, Japan has joined the US and EU in blocking Russian banks from international financial networks, however it seems unlikely that Japanese energy companies will follow Europe’s oil companies and pull the plug on Russian investments.
Japanese consortium, Sakhalin Oil and Gas Development (SODECO) that includes Itochu and Marubeni, have also said they have no plans yet to withdraw from the Sakhalin-1 project, that ExxonMobil is exiting.
Exxon operates Sakhalin-1 on behalf of the Japanese consortium, as well as Indian and Russian companies that includes Russia’s Rosneft. The group had been progressing plans to add an LNG facility.
Sakhalin-1 recently pumped about 220,000 barrels per day of oil, according to ExxonMobil.
On March 1, 2022, ExxonMobil announced that it will discontinue operations at Sakhalin-1 and will make no new investments in Russia.
In its press release, U.S. Texas based ExxonMobile said;
ExxonMobil operates the Sakhalin-1 project on behalf of an international consortium of Japanese, Indian and Russian companies. In response to recent events, we are beginning the process to discontinue operations and developing steps to exit the Sakhalin-1 venture.
As operator of Sakhalin-1, we have an obligation to ensure the safety of people, protection of the environment and integrity of operations. Our role as operator goes beyond an equity investment. The process to discontinue operations will need to be carefully managed and closely coordinated with the co-venturers in order to ensure it is executed safely.
India’s ONGC Videsh, which owns a 20% stake in the Sakhalin-1 project, just like its Japanese counterparts have no interest in quitting the project.
In response to the ExxonMobil pull-out, ONGC Videsh told Reuters that the partners will decide over the next few weeks on how to keep operating the project after the exit.
Nnamdi Maduakor is a Writer, Investor and Entrepreneur
