Japan. Four Islands and Russian gas
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During the latest meeting between Russia and Japan, there were many items placed on the agenda, primarily, energy. Twenty-three agreements were prepared concerning both the scope of the advanced development and the more traditional branches of hydrocarbons and the issue of the gas pipeline that connects the gas fields of Sakhalin to Japan resurfaced

Russian President Vladimir Putin’s latest visit to Japan, the first in eleven years, was had been prepared for a very long time, but caused both contentment and dissatisfaction on both sides. The Japanese wanted, in fact, to be gifted the four southern Kuril Islands - Etorofu, Shikotan, Kunashiri and Habomai - under discussion for 70 years, which, again, it did not receive, and was said to be unhappy for this reason, while the Russians are obviously satisfied.

Geopolitical issues

For #Japan, the construction of the LNG pipeline from Sakhalin to Tokyo could be the best and even most financially advantageous solution

The Russian President’s spokesman, Dmitri Peskov, was very clear: "the question regarding the sovereignty of the islands was not raised, and there is no room for discussion on the matter". However, now there is talk of co-development regarding the four islands, "with Russian legal laws", say the Russians; while the Asians state that it is still "unknown", and that "perhaps there will be specific laws, made ad hoc". For this reason, the Japanese are happy: in fact, the matter seems to have been at least unlocked and economic and entrepreneurial activity may be conducted on these islands; even if the Russians are worried because, de facto, common activities would lead to their "colonization" by the Japanese, who are richer than the Russians who live there. Therefore, we are faced with a puzzle that will likely be resolved slowly, over time, when an ad hoc economic and entrepreneurial regime is established.

Energy agreements

In addition to this, of course, a good part of Putin’s Japanese meeting time was dedicated to business relations, mostly energy. The Russian President brought with him a strong team of energy chiefs, from Minister Alexander Novak to the directors of Gazprom, Rosneft and Novatek, (that is, respectively, Alexey Miller, Igor Sechin and Leonid Mikhelson). Novak specifically said that in the energy industry alone, twenty-three agreements had been prepared, concerning both the scope of advanced development and the more traditional branches of hydrocarbons. Rosneft’s agreement with Marubeni Corporation and with JOGMES, for the exploration and development of new gas fields to the south-west of Sakhalin, is very interesting, with the possible construction of an LNG plant in the event of success. There is also Novatek’s agreement with Marubeni and other Japanese companies for the development of a deposit in Yamal. Japanese companies Mitsui and Mitsubishi, along with Gazprom, have reached an agreement for the construction of an LNG plant in Sakhalin, as part of the Sakhalin-2 project. However, rumor has it that Gazprom has taken up old negotiations on the possibility of constructing a gas pipeline from Sakhalin to Hokkaido. Alexey Miller confirmed that "in reality, discussions are in progress" and "without a shadow of a doubt, such a project may be implemented''.

The agreement between Rosneft and the Marubeni Corporation with JOGMES, for the exploration and development of new gas fields to the south-west of Sakhalin, is very interesting, including the potential construction of an LNG plant

The gas project

The construction of a gas pipeline connecting the gas fields of Sakhalin with Japan has indeed been discussed since the early 2000s. After the Fukushima disaster in 2011, discussions have intensified, but in 2012, Gazprom abandoned this solution, focusing on LNG. However, for Japan, the gas pipeline could be the best and even most economical solution. It is thought that a 1,350 km-long gas pipeline travelling from Sakhalin to Tokyo, with a capacity of 20 bcm of gas per year, could cost around $6 billion, an investment comparable to that of an LNG plant with a capacity of approximately 7 bcm. Not to mention the greater security of supplies for Japan, in the event that the gas pipeline is constructed. However, Gazprom, several years ago, preferred not to connect so closely to a country with which not even a peace treaty had been signed. So, what has happened that could change the Russian giant’s mind? The reason probably lies in the increased collaboration of the Japanese, not only in projects close to them (they already have shares in Sakhalin-1 and Sakhalin-2), but also in Baltic LNG (an LNG plant near St Petersburg) or in the Amur petrochemical complex, which need considerable investment. Moreover, as said by people who are more informed about the negotiations, even gas prices, or, rather, the pricing formula, could be a key factor. ''If we establish a price linked to the price of oil, with a small discount of 11-12% compared with JCC, the gas pipeline project becomes interesting''. Apart from hydrocarbon projects, Russia’s RusHydro has also signed a series of documents with Japanese companies, including the localization of the production of turbines and poles for wind power in the Russian Federation, and other cooperation projects in the field of renewable energy. "The conclusion of the territorial dispute over the Kuril Islands, as well as the stipulation of a peace treaty between Moscow and Tokyo, is not a result that can be achieved in a short time", said Vladimir Putin, after his meeting with Prime Minister Shinzo Abe. However, collaboration in the business sector seems to be going very well, even without a peace treaty.

It is thought that a 1,350 km-long gas pipeline travelling from Sakhalin to Tokyo, with a capacity of 20 bcm of gas per year, could cost around $6 billion, an investment comparable to that of an LNG plant with a capacity of approximately 7 bcm