Apr 25, 2022
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“Sakhalin-2”: “Gazprom” can well “weld” on Japanese sanctions

Photo: Alexander Semenov / TASS

Japan will not withdraw from the Sakhalin-2 oil and gas project due to fears that another country could take its place, said the Minister of Economy, Trade and Industry Koichi Hagiuda at a cabinet meeting.

He drew attention to the fact that the Anglo-Dutch Shell had already begun negotiations on the sale of its stake in Sakhalin-2 to a Chinese company.

Earlier, Bloomberg reported that the interest of Chinese state-owned oil companies in buying a stake in Sakhalin-2 is forcing Japanese Mitsubishi and Mitsui to continue their joint venture with Gazprom. Japanese companies own a 22.5% stake in the project, and most of the liquefied natural gas produced there is supplied to Japan. Another 27.5% stake in Sakhalin-2 is owned by Shell, 50% is owned by Gazprom.

So what are the Japanese more afraid of? Lose your investment? Or that their share goes to the main competitor – China?

The Japanese are more pragmatic than the Europeans, I’m sure Head of the Expert Council of the Strategic Development Fund, political scientist Igor Shatrov.

– They do not hide the fact that the exit from the Sakhalin-2 project threatens to pass it into the hands of the Chinese, as well as an increase in energy prices, which will eventually hit Japan like a boomerang and bring benefits to Russia. This was directly stated by the Minister of Economy, Trade and Industry of the Land of the Rising Sun Koichi Hagiuda. One cannot but agree with him. It is astonishing that such common sense is not being held in the EU.

“SP”: – For Japan, China is a competitor or an existential enemy? Does Tokyo believe it can reduce Beijing’s influence in Asia?

– China is a historical enemy for Japan. The wounds of the last standoff in World War II have not yet healed. Japan is still paying for its militaristic policy of the beginning of the last century, being de facto under American occupation. China, on the other hand, being now much freer in making foreign policy and foreign economic decisions, only provokes Japan. The electorate will not understand if the Japanese government, at the behest of Washington, abandons its investment project on Sakhalin in favor of China.

“SP”: – And if the Chinese buy out Shell’s share …

— China and Japan, for all their contradictions, are each other’s biggest trading partners. Nothing prevents them from interacting within the framework of one investment project and receiving their share of the profits from it. But the Japanese, of course, do not want to give their part of the project to the Chinese.

“SP”: – According to Hagiuda, the refusal to invest in Sakhalin-2 will lead to an increase in prices for resources and, conversely, will benefit Russia.

– As I said, the Japanese showed a pragmatic approach, which, as we previously believed, was exclusive to Europeans. Refusal to participate in the Sakhalin-2 project is disadvantageous for Japan for many reasons – both geopolitical and purely economic, and simply because it poses a threat to national security. After weighing all the pros and cons, Tokyo came to the conclusion that it was necessary to continue participating in the project.

“SP”: – That is, do they still have methods? Can Russia play on the geopolitical interests of regional players, not allowing the sanctions pressure to increase?

– Russia just needs to be consistent, not try to bargain for anything, but stubbornly pursue a tough policy based on its own national interests. This will deprive partners of the illusion that talking with Moscow from a position of strength is acceptable and can persuade Russia to cooperate on unfavorable terms.

– The Japanese are afraid, firstly, of losing money, because now, if they leave, whoever comes to replace them, either Gazprom itself will buy it out, or the Chinese or someone else, in any case, they will sell their share can only for three kopecks, – considers leading expert of the National Energy Security Fund Igor Yushkov.

– Because Russia is interested in the fact that it itself can be redeemed for a ruble, for a dollar conditionally. The deal must still be approved by the Russian leadership, so even the Chinese can be gently hinted that this deal is not agreed, but if the Japanese sell it, then for a dollar, it will be possible to buy it out, and then sell it to the Chinese at a higher price.

In any case, the Japanese will incur losses, because they bought at one price, and they will have to sell at another. And then, Sakhalin Energy, the operating company, is a very profitable enterprise, so this is also a lost profit. This enterprise liquefies gas in the subarctic zone – not like in Yamal, of course, but at zero degrees, much less energy is spent on liquefaction than in Qatar at plus 40. That is, the cost of LNG there is several times lower. At the current cost of gas, this is a very efficient enterprise. In addition, the distance – during the day, gas is delivered from Sakhalin to consumers in Japan.

So the main thing for them is the loss of the opportunity to earn money. Well, the prospect of losing cheap gas is more of an excuse, they say, they are afraid that Sakhalin Energy will break the contract with them, and after all, Japan and South Korea are the main consumers of Sakhalin gas.

True, this fear is unfounded: why would Gazprom deprive them of gas? It’s more of a scare story they use to keep from leaving. It is one thing to take care of the profit – Western partners will not understand. And when you say that you would gladly leave, but I can’t leave ordinary Japanese without gas, it’s another matter.

In addition, they justify their reluctance to leave by saying that this will not change anything, the plant will still work, but if they leave, Gazprom will receive more net profit, which means Russia will earn more. But the sanctions are just aimed at making the Russian state earn less, which will embitter the population and force the leadership to change its foreign policy. According to this logic, Russia will also thank the Japanese, who once invested, built a plant together with Shell, and now they leave it to Moscow and do not take money for it. Rather, they give it for three kopecks, since no one will redeem this share for the real value.

What else is left? Sell ​​to the Chinese? Another question, because China is perceived by many in the West as a Russian ally. It would turn out that Tokyo is strengthening the Russian-Chinese alliance, Washington will definitely not say “thank you” for this.

And there are no other options, since either Russia or China can buy a stake in Sakhalin-2

In addition, one must understand that any destabilization of the work of Sakhalin-2 can lead to an increase in gas prices. Moreover, we are talking about LNG, and today Europe really wants to increase the share of LNG, i.e. will claim large volumes. What if the market shrinks? And the deficit in this market is already very strong. Therefore, touching LNG projects today means harming both the European and Asian economies.

“SP”: – And for Russia it matters who will participate there? And do we really need foreign participants?

– Foreign participants have historically been in Sakhalin-1 and Sakhalin-2, there is a production sharing agreement. This is a special format that is not subject to national tax laws. This format is often criticized because it is used in third world countries. In the 90s, everyone understood that Russia would not be able to carry out such projects without foreign technologies and investments.

Initially, there was no Russia at all in these projects, it was already in the 2000s that a new policy began, according to which the state should have a controlling stake. There were special claims against Sakhalin-2, where tax pressure and environmental pressure began. As a result, they forced Shell and other foreigners to sell a controlling stake to Gazprom.

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