The materialization of the Sakhalin-Japan pipeline would give Russia additional bargaining leverage with the European Union, as well as increase its presence in the Asian market. Japan would benefit by importing cheaper gas.
While presenting the details of Japanese Prime Minister Shinzo Abe’s visit to the Eastern Economic Forum in Vladivostok earlier this month, reporters began to shed light on the Japanese proposed bid package, allegedly consisting of eight points.
The plan comprises of appeals to widen cooperation in the spheres of healthcare, urban planning and small and medium enterprise cooperation. However, the most noteworthy item in the plan is the reinvigoration of a long-faded proposal to construct a gas pipeline between Russia’s Sakhalin Island and Japan.
An old idea
The idea of constructing an underwater pipeline between Sakhalin and the Japanese islands has been floating around in one form or another for the last 15 years.
Japan Petroleum Exploration Co. expressed its interest in constructing a Sakhalin-Tokyo gas pipeline, which it deemed technically feasible and economically viable. At that time, sources cited a throughput capacity of 8 billion cubic meters (bcm) per year.
ExxonMobil, the majority owner and operator of the Sakhalin-1 project, reciprocated the interest and reiterated its willingness to start gas exports by 2008. Afterwards, the project was silently and inconspicuously phased out. In 2006, a new variant emerged of a gas pipeline uniting Sakhalin and Japan, to be constructed between Sakhalin’s gas fields and the northern prefecture of Aomori on Hokkaido Island.
The Japanese offer came on the back of rising liquefied natural gas (LNG) prices. Once again, the initiative did not last long as the Russian Federal Service for Oversight of Natural Resource Usage investigations of environmental damage to Sakhalin’s wildlife forced the subject yet again into temporary oblivion.
Aftermath of Fukushima
The Fukushima nuclear disaster in March 2011 brought the issue back into the limelight. Russia, not unlike its firm commitment to stand by the United States immediately after the 9/11 terrorist attack, was one of the first countries to offer support to Japan in the form of rescue teams and energy supplies. This reinvigorated the dialogue between the two countries and provided a new impetus for the discussion of joint energy projects.
Famously devoid of fossil fuel resources, Japan has been trying to get the most out of the current dire situation when almost all of its energy is produced from fossil resources.
Although there exist many other gas-producing regions from which it is possible to source the gas, Sakhalin is a fitting variant. Only 45 kilometers away from the northernmost tip of Hokkaido, Sakhalin’s gas production amounted to 28.4 bcm in 2015.
Of this, Russian energy giant Gazprom’s part is approximately 8.5 bcm – 7.5 bcm from Sakhalin-II and an initial 1 bcm from Sakhalin-III (Kirinskoye field). As Sakhalin-III moves towards its projected peak production levels of 21-22 bcm, to be reached by 2026-2027, Gazprom would find ample space to fill an eventual gas pipeline to Japan, as well as to continue with its LNG business. Even U.S.-imposed sanctions specifically targeting the gas-rich Yuzhno-Kirinskoye field need not derail the project.
Benefits for Japan and Russia
The sole fact that the gas pipeline project has found government support after many years of linking the development of economic cooperation to signing a Russo-Japanese peace treaty, with the return of the Northern Territories (as the Southern Kuril Islands are called in Japan) as a sine qua non condition, marks a significant shift towards pragmatism on the part of Japanese politicians.
Japan is advocating an undersea gas pipeline for a number of reasons, but primary among them is profit. It has been relying significantly on LNG imports to cover its energy needs. Southwest Asian LNG prices have been higher than European or American ones for quite some time, therefore, a gas pipeline would allow Japan to avoid paying a significant price premium.
The materialization of the Sakhalin-Japan pipeline would give Russia, or Gazprom to be more precise, additional bargaining leverage with the European Union. It would also help Gazprom deal with the traditionally staunch Chinese companies as it would rid itself of a one-market export dependence and bring to fruition the eastbound gas supply diversification it long sought to attain.
If enough political will would be demonstrated to push the Japanese deal through, it could also give impetus to revive Russo-Korean talks on the construction of a gas pipeline either via North Korea or by means of an underwater pipeline.