Russia, Japan deepen ties with agreements on upstream, LNG cooperation by Nastassia Astrasheuskaya, December 18, 2016, Platts
Russian and Japanese companies Friday signed a number of memoranda and agreements on cooperation in hydrocarbons development during the first visit to Japan in 11 years by a Russian president.
The agreements included joint exploration offshore Sakhalin, technological and financial collaboration in oil, gas and LNG, and established a mutual fund for such projects.
The documents — 23 of them energy-related — signed in the presence of President Vladimir Putin and Japan’s Prime Minister Shinzo Abe, include three Japanese companies joining Rosneft in hydrocarbons exploration offshore Sakhalin, expanding LNG partnership with Gazprom and Novatek, opening a credit line for Yamal LNG plant and setting up a mutual fund, among other agreements.
With a total of more than 80 projects outlined and signed off, the collaboration entered a level “unprecedented in the history of Russia-Japan relations,” Abe said in a briefing following the signing ceremony in Tokyo, adding the countries can have “a win-win economic partnership.”
With Moscow’s turn to Asia in search of investors in light of western sanctions targeting the country’s energy sector among other areas since 2014, Japan has been conspicuously absent from new deals, while companies from China and India signed numerous agreements to enter the Russian upstream.
Ties with Japan have been complicated by a long-lasting territorial dispute over the four Kuril Islands, as well as by Japan joining sanctions, even if in the form of milder restrictions not preventing its companies from taking an active role in oil exploration and production in Russia.
The sanctions, as well as volatile commodity prices and resulting currency fluctuations, have led to a 28% year-on-year drop in trade turnover this year, Putin said, expressing the will to turn the situation around, including through greater energy cooperation.
“Energy is a strategic area of Russia-Japan cooperation,” Putin said, noting Russia’s “reliable” LNG supplies, in excess of 8% of Japan’s needs.
Japan is also one of the top buyers of Russia’s ESPO and Sokol crude.
Among key new cooperation areas, Putin noted Rosneft’s talks on attracting Japanese investors into oil and gas production in the Sea of Okhotsk, construction of the second LNG plant in Sakhalin, Far Eastern LNG, and exploring the possibility of an “energy bridge” between Russia and Japan, and laying a Sakhalin-Hokkaido gas pipeline.
“The implementation of these large-scale projects will supply Japanese consumers with additional LNG and power at affordable prices and at the shortest distances,” Putin said.
To help finance these and other projects, Russian Direct Investment Fund and Japan Bank for International Cooperation (JBIC) agreed to set up a $1 billion mutual Russia-Japan Investment Fund, each investing half the amount, with first deals expected in the coming year, RDIF said in a statement. ROSNEFT DEAL
Russia’s top crude producer Rosneft signed a heads of agreement with three Japanese companies — state-owned Japan Oil, Gas and Metals National Corporation (Jogmec), Inpex, the country’s largest oil and gas exploration and production company, and Marubeni — on hydrocarbons exploration, development and production at a license block offshore Russia’s Far Eastern Sakhalin Island.
The parties agreed to work in Sakhalin’s southwestern offshore area between the island, just north of Japan, and mainland Russia.
Rosneft and the three Japanese companies plan to hold exploration in the area using Shigen seismic vessel and Jogmec’s overseas geological and geophysical survey scheme, the Japanese companies said in a joint statement.
Japan sees the project as a chance to firm economic ties with Russia and its energy security should hydrocarbons be found in the area, they said.
“In the event that hydrocarbons are discovered as a result of exploration in the area, which is in close proximity to Japan, the three Japanese companies expect that the project will promote energy security in Japan through the resultant benefits of greater diversity of the country’s energy sources and a short transportation distance,” the companies said. The heads of agreement also follows Rosneft’s strategy of attracting partners in capital-intensive offshore projects to accelerate their development and split geological risks, Rosneft said in a separate statement.
He then called for building an “energy bridge” to enable Russia to supply Japan with “crude, oil products, LNG and other energy resources in return for machinery and equipment deliveries, and even asset swaps.”
Russia’s gas giant Gazprom, which leads the Sakhalin-2 consortium operating the only producing LNG plant at the moment, noted large potential for cooperation in LNG with Japanese companies, including in technology, production and investment, after signing agreements on strategic partnership in LNG with Mitsui and Mitsubishi, Sakhalin-2 stakeholders, along with Shell. The agreements aim at partnering on the Sakhalin-2 LNG expansion by half with the addition of the third train tentatively set for in 2021, as well as LNG bunkering with Mitsui and other opportunities with Mitsubishi, it said.
Gazprom is also considering partnering with Mitsui and Mitsubishi on another future LNG plant, Baltic LNG, on the Baltic Sea coast, and swapping assets with the two companies “to build mutually beneficial chains and expanding joint work,” Gazprom’s CEO Alexei Miller told RT channel later in the day.
The construction of a gas pipeline to Japan is “technologically not so simple an issue, but still a realistic one” and may get on the agenda of Russia-Japan talks in the nearest future, Miller told NTV channel.
“We see the enormous potential of mutually beneficial cooperation with Japanese companies in implementing LNG projects by combining our expertise to ensure the most cost competitive LNG production as well as joint developing of LNG markets,” Novatek CEO Leonid Mikhelson said in a statement.
Gazprom’s oil arm, Gazprom Neft, also said it signed an agreement with Yokogawa Electric Corporation to set up an innovations center in St Petersburg to develop automated control system for refining. [Emphasis added]
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