Moscow — Japan is hoping to strengthen ties with Russia to ensure security of energy supply amid growing uncertainties on the global oil market, with sanctions in place against Moscow not seen by Tokyo as an obstacle to boosting cooperation, Japan’s Minister of Economy, Trade and Industry, Hiroshige Seko, told S&P Global Platts.

“As there are contrasting views that supply and demand will either slacken due to economic slowdown, or tighten with increased US sanctions against Iran, uncertainty surrounding the crude oil market is increasing,” Seko said in a written interview.

In such an environment, Russian energy flows offer the advantage of short-haul transportation and Japan, which heavily depends on imports of crude oil and LNG, is interested in building closer ties with one of the world’s major energy suppliers, he said.

“Imports of Russian crude oil and LNG do not go through any chokepoints such as the Strait of Hormuz. Therefore they are important for the diversification of Japan’s energy import sources, and I hope that Russia will play an even larger role. I would like to continue working to expand our cooperation,” Seko said.

Japan heavily relies on crude oil imports from the Middle East — a majority of which transits through the Strait of Hormuz. Iran has threatened to block supplies shipped through the Strait of Hormuz if it is prevented from exporting its own oil from the region.

Seko was appointed as Japan’s de-facto energy minister as well as the minister for economic cooperation with Russia in 2016 after Prime Minister Shinzo Abe announced his wide-scale program to build a close relationship with Russia. The plan is designed to help resolve a territorial dispute over the Kuril Islands, known as the Northern Territories in Japan.

Since then, Japan and Russia have intensified contact, including at the highest political level. Most recently, Abe visited Moscow in January. Russia’s President Vladimir Putin is expected to visit Japan in June.

COOPERATION OPPORTUNITIES

There are multiple oil and gas projects in Russia in which Japanese companies are seeking to take part, said Seko, who accompanied Abe on the January visit.

“Japanese companies are interested in LNG projects such as Arctic LNG 2, Sakhalin 2 third train, Baltic LNG, etc. If Japanese companies can participate in these LNG projects, LNG imports from Russia will increase further,” he said.

Talks are also progressing on wind power projects, energy conservation audits for buildings in the Russian Far East, renewable energy and nuclear energy cooperation such as decommissioning of the Fukushima Daiichi nuclear power plant, he said.

“During my recent visit to Moscow, I discussed mainly these projects with my counterparts in the Russian government,” Seko said.

He also co-chairs the Russia-Japan Energy Consultative Council with Russian energy minister Alexander Novak.

Russia accounted for around 6% of Japan’s total crude oil imports and around 9% of its LNG imports in 2017, Seko said, without elaborating on the energy supplies in 2018.

Sakhalin 1 and Sakhalin 2, in which Japanese companies hold significant stakes, are key sources for cargoes to Japan, along with deliveries of ESPO crude blend from the Far Eastern port of Kozmino on the Pacific coast, he said.

ESPO crude supply has an advantage in its short haul of just two to three days from Kozmino in Russia’s Far East, compared with around a 20-25 day voyage from the Middle East.

SANCTIONS

Seko also said current sanctions against Russia — introduced since 2014 by the US, EU, Japan and a number of other countries — “do not comprehensively prohibit Japan’s energy cooperation with Russia.”

“The energy cooperation secures the interests of Japanese companies, while maintaining compliance with any of the US, EU, and Japanese sanctions against Russia,” he said.

Sakhalin 1 and Sakhalin 2 “have continued to produce oil and LNG in the same way as before the sanctions, and discussions on new projects… are also underway,” he said.

Japanese entities are also present in other projects in Russia. The list includes state-owned Japan Oil, Gas and Metals National Corp. exploring oil reserves in East Siberia and state-owned Japan Bank for International Cooperation (JBIC) financing Yamal LNG and taking part in the Russian-Japan Investment Fund set up to jointly pursue new investment opportunities, among other companies.

Sanctions against Moscow have mainly limited Russia’s access to Western financial markets and also ban transferring certain technology to new oil projects aimed at developing shale formations and reservoirs located in deep waters or in the Arctic.

SPGlobal

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