Japanese Duo to Seek Stakes in New Sakhalin Operator

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Japanese trading firms Mitsui and Mitsubishi said they have decided to apply for stakes in the new operator of the Sakhalin-2 project in Russia’s Far East.

Mitsui and Mitsubishi have been asked to inform newly established Russian operator, Sakhalinskaya Energiya, or Sakhalin Energy, on whether they want to retain their respective 12.5% and 10% stakes in the Sakhalin-2 project. The deadline is within one month since the new operator was set up, which means by Sept. 4.

"A resolution was passed this morning regarding the submission of a consent to take a stake. The consent will be filed by the deadline," a Mitsubishi spokesperson said, referring to the Sept. 4 deadline.

A Mitsui spokesperson said the company has decided to retain its stake in the Sakhalin-2 project.

Their decisions, which would be subject to approval by Moscow, did not come as a major surprise. The Japanese government has asked both firms to consider keeping their positions in the project, which supplies around 5 million tons per year of LNG to Japan, in the name of energy security.

Japan is bucking a trend led by Western countries and energy firms by not boycotting Russia. Shell and Exxon Mobil said they would exit Russia, but it remains unclear how they would sell their assets. Shell, which used to hold a 27.5% stake in the Sakhalin-2 project, has said it is unlikely to seek a stake in the new operator.

Currently, state-owned Gazprom owns just over 50% of Sakhalin Energy with the remaining 49.99% held by the new operating company until existing shareholders seek a stake.

Japan's Dependence on Russia
YearJapan's Total LNG ImportsJapan's Russian LNG ImportsRussian Share of Japanese LNG Imports

Supply Disruption?

Meanwhile Japanese buyers have been asked to re-sign new contracts with the new operator. Jera and Tokyo Gas have reportedly signed new contracts with the new operator, while other buyers may have been taking a wait-and-see approach.

Bloomberg reported Thursday that the new operator, Sakhalin Energy, has cancelled a shipment to at least one Asian customer due to payment issues as well as delays signing revised contracts. This could mark Sakhalin-2’s first supply disruption to Japan since the Russian war in Ukraine broke out in February.

Under the new contracts, Japanese buyers are allowed to continue paying in US dollars to Gazprombank, according to Bloomberg. But Sakhalin Energy has also told its customers to use alternative currencies — including the ruble, euro, yen, or British pound — if payments in dollars, as set in contracts, cannot be processed because of sanctions issues.

Gazprombank, partly owned by Gazprom, has so far been spared from severe sanctions as European countries are using the third-largest bank in Russia to handle payments for their natural gas imports. To avoid sanctions, European buyers have opened two bank accounts at Gazprombank — one in euros and one in rubles — as demanded by Moscow.

Sakhalin Energy said on Aug.19 that it was fully operational in terms of production and business activities and would be fulfilling all existing obligations.

A total of eight Japanese power and gas utilities — Jera, Tokyo Gas, Osaka Gas, Hiroshima Gas, Toho Gas, Tohoku Electric, Kyushu Electric and Saibu Gas — have contracted to buy a combined 5 million tons/yr from the 9.6 million ton/yr project in Russia’s Far East.

These supplies are currently priced much more competitively than today’s high LNG spot prices above $60 per million Btu, which means buyers would want to cling to their term supplies amid tightening global supplies.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact

LNG Contracts, LNG Supply, LNG Projects, Sanctions, Corporate Strategy , Ukraine Crisis
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