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  • PM Fumio Kishida says Sakhalin 2’s new operator will not cause an immediate halt in LNG shipments to Japan
  • 2022 July 1 14:27

    PM Fumio Kishida says Sakhalin 2’s new operator will not cause an immediate halt in LNG shipments to Japan

    Sakhalin 2 can produce about 10 million tons of LNG a year.

    Russian President Vladimir Putin has signed a decree to set up a new operating company for the Sakhalin 2 oil and liquefied natural gas project, Russian media reported, casting the investments of two major Japanese trading houses into doubt, Kyodo News reported.

    Prime Minister Fumio Kishida denied it would immediately cause a halt in the shipment of LNG to Japan. "We must communicate with the operator and consider how to respond," he told reporters in Okinawa Prefecture.

    The trading houses, Mitsui & Co. and Mitsubishi Corp., could be forced to withdraw from the project in the Russian Far East following the decision made Thursday, as foreign investors must apply within a month to retain their existing shares in the new entity, according to the decree.

    Japan, which is already reeling from the effects of higher energy prices following the situation in Ukraine after February, might be forced to source LNG from the market at higher prices. Around 9 percent of Japan's LNG imports come from Russia, almost all of them supplied by Sakhalin 2.

    Failure to agree to the new terms, which have yet to be elaborated on, would lead to investors' shares being sold. The new firm will be affiliated with Russian energy company Gazprom and effectively under Russian government control, with all staff and businesses transferred from the current operator Sakhalin Energy Investment Co.
    Mitsui and Mitsubishi hold 12.5% and 10% stakes, respectively, and said they are confirming the facts in response to the news.

    The decree said the removal of the operating firm is aimed at protecting Russia's national interests from "unfriendly" acts by the United States and other countries which have imposed sanctions on Moscow. Japan has coordinated with the United States and European countries to impose sanctions on Russia.
    The Japanese government has stressed the need to retain interests in oil and gas projects off Sakhalin as they are vital to securing stable energy supplies.
    British oil giant Shell PLC, which has an approximately 27.5% stake in the project, said on Feb. 28 that it would exit the Sakhalin 2 JV with Gazprom. Gazprom holds around a 50% stake in the project.

    News of the potential loss comes as Japan tries to prevent power shortages amid a blistering heatwave.

    Hiroshima Gas Co., which procures about 50% of its LNG from Sakhalin 2, said of the news it is looking at measures, including increasing our procurement from other contractors, in the event that supplies are affected.

    Sakhalin 2 can produce about 10 million tons of LNG a year.




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