Japanese gov’t indicates support . . .
Japanese Minister of Economy, Trade and Industry, Koichi Hagiuda, has appealed to two domestic oil companies, Mitsui & Co. and Mitsubishi Corporation, to retain their shares in Russia’s Sakhalin-2 offshore oil and gas project to ensure Japan’s energy security. The August 5 appeal from Hagiuda followed Russia’s recent nationalization decree concerning the Sakhalin Energy Investment Company, which has rights to Sakhalin-2. Russia is moving to nationalize the energy company as part of its special economic measures in the sector in response to “unfriendly actions of certain foreign states and international organizations,” such as international sanctions. A new company, Sakhalin Energy LLC, was created last week to oversee the reallocation of shares in the Sakhalin-2 project. To secure their participation in the Sakhalin-2 project under the new company, existing investors must re-apply for their shares.
Redistribution of shares . . .
The establishment of the Sakhalin Energy LLC has set a one-month clock on foreign investors’ decision on whether to retain their stakes in the Sakhalin-2 project. While Shell, which owns 27.5 per cent of the shares in the project, has declared its interest in withdrawing, Mitsui and Mitsubishi, which jointly hold 22.5 per cent of the shares, are interested in retaining their ownership in the project. Under the new Russian decree, these three companies will have to apply for and obtain permission from Moscow to retain their stakes in the Sakhalin-2 project. If they fail to obtain permission, their stakes will be sold to a Russian company, resulting in a de-facto nationalization.
Energy insecurity rising . . .
The decree puts Japanese companies in a precarious position as Japan relies on Russia for 10 per cent of its LNG supplies, the majority of which is produced via Sakhalin-2. If Mitsui and Mitsubishi fail to reaffirm their shares in the project, they may lose access to the Russian LNG market and may be forced to look for alternative LNG suppliers. The search for alternative supplies is complicated because long-term LNG contracts are sold out globally until 2026 due to the global energy crisis triggered by the Russia-Ukraine war. Japan is also interested in retaining its stakes in the Sakhalin-1 project, which supplies oil to Japan. A possible loss of Russian oil and gas supplies would significantly increase pressure on Japan’s energy security.
- The Economist: Japanese energy firms cling on to their Russian assets
- Journal of Petroleum Technology: Russia takes over the Sakhalin-2 LNG project, squeezing Shell
- Nikkei Asia: Russia transfers Sakhalin-2 to the new operator without compensation