Japan exploiting Russia's LNG ambitions
June 1, 2013 Olga Senina, special to RBTH Asia
Japanese businesses are investigating Russian liquefied national gas (LNG) projects
Russia annually exports just 6.5 million tonnes of LNG to Japan, or around 8% of the market requirement.The gas comes from the Sakhalin-2 project, which is being jointly developed by Gazprom (50% plus one share), Shell (27.5%), Mitsui (12.5%) and Mitsubishi (10%).
The project supplies LNG to customers in Japan (63.9%), South Korea (16.17%) and on the US western coast (19.94%).
The importers are interested in increasing these volumes. Russian gas producers are eager to welcome Japanese companies to their LNG projects.
None of these projects has a clear-cup future but Asian partners may raise their chances of success, both through potential investment and in the form of guaranteed paying demand for the end product.
The Japanese closely follow the on-going race of LNG ambitions between Russia's state-run Gazprom and Rosneft, and wisely stake on both contenders.
Marubeni Corporation, which signed a memorandum with Rosneft in mid-April to implement joint LNG projects in Russia's Far East, is considering joining a project to build an LNG plant within the Sakhalin-1 project (jointly developed by ExxonMobil with 30%, Rosneft with 20%, India's ONGC with 20%, and Japan's Sodeco with 30%).
The memorandum was signed five days after Russian President Vladimir Putin's suggestion to process Sakhalin-1 gas at the existing Sakhalin-2 LNG facility. This recommendation effectively postponed Rosneft's own LNG project indefinitely.
In actual fact, Japanese companies support both Sakhalin-1 and Sakhalin-2. "Sakhalin is the new LNG source, and it is located very close to Japan," Yasushi Yoshikai, a managing officer at Mitsui and Co. said at a presentation of Sakhalin Region in Tokyo in late April.
"We want to expand our presence in Sakhalin by taking part in new projects." Hitoshi Nishizawa of Tokyo Electric Co., which imports 3 million tonnes of Sakhalin LNG, also hopes for the development of new projects in that region, saying that the Sakhalin supplies are the most profitable for Japan.
Japanese importers are also interested in private Russian LNG projects. Novatek CEO Leonid Mikhelson commented after a meeting in Tokyo with representatives of Tokyo Gas, Tokyo Electric, Itochu, Mitsubishi and Mitsui, that the Japanes companies, which already hold shares in Sakhalin-2, are interested in joining the Yamal LNG project.
Yamal LNG, jointly controlled by Novatek (currently 80% but prepared to lower the share to 51%) and Total (20%), envisages the construction of a gas liquefaction facility (to be jointly built by the French company Technip and JGC of Japan), a sea port near Sabetta in Russia's Yamal-Nenets Autonomous Area, and a fleet of ice class tankers.
According to Russian Energy Minister Alexander Novak, Novatek's potential partners in Yamal LNG are Tokyo Gas, Tokyo Electric, Murabeni, Mitsui and Mitsubishi.
Tokyo is interested in buying gas at the lowest possible price. At present it buys LNG at $550 per 1,000 cu.m., whereas the price for European consumers stands at $365.
Japan saw a hike in LNG demand following the Fukushima-1 disaster in March 2011, but the importers have recently started demanding a discount, including from Gazprom.
The Russian gas giant is not prepared to discuss a lowering of prices at the moment, according to a Gazprom source.
The Japanese partners have been asking to consider the possibility of underwater pipeline deliveries but Gazprom is sceptical about the feasibility of such a project.
Once Tokyo has accumulated a collection of proposals from state- and private-run exporters in Russia and elsewhere, it will be able to request discounts, says Valery Nesterov with Sberbank Investment Research. Japan, South Korea and China are in the middle of revising the established gas pricing formulae ahead of the expected massive supplies of cheap LNG to Asia.
The gas price is historically linked to the price of oil, but US companies trading in shale gas base their pricing on spot values. It is possible that more expensive gas will have difficulty getting to the Asian markets.
One thing is clear: an abundance of potential suppliers provides customers with a greater choice.
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