Russia To Take Total Control of Its Huge Sakhalin-2 Natural Gas and Oil Project
July 6, 2022 (EIRNS)—The Russian government has announced that, over the next few months, foreign involvement in the huge Sakhalin-2 natural gas and oil project in Russia’s far east will end. This is as per the decree signed by Russian President Vladimir at the end of June, which stated that that all mineral and energy resources in Russia’s sub-soil will henceforth have to be fully owned by Russians, either from the public or private sectors.
Sakhalin-2 is currently 50% (plus one stock) owned by Russia’s state-run Gazprom energy giant; 27.5% by Shell; and 12.5% by Mitsui and 10% by Mitsubishi, both of Japan. Shell months ago announced it would be exiting the project, wrote down its investment by $1.5 billion, and is currently looking for buyers. Japan, however, is desperate to stay in the project, with the government stating that the facility is “essentially important” to the nation’s energy security.
That is no exaggeration: according to Reuters, 24% of Japan’s energy is supplied by natural gas, and 9% of that gas is imported from Russia. If Russia stops exporting gas to Japan altogether—a very real possibility, given the state of international economic warfare—Japan will have over 2% of its national energy supply disappear overnight. That is a huge blow.
Sakhalin-2 produces about 4% of the world’s LNG supply, and 60% of that Sakhalin-2 gas currently is exported to Japan under reasonably-priced long-term contracts. It is also only two days shipping time to Japan, as compared to the one month shipping time for equivalent supplies from the U.S. (were they even available). But, as an op-ed in the Brisbane Times reported July 6, “there isn’t enough gas available in the global market to replace the gas it [Japan] buys from Russia.” The other large purchasers from Sakhalin-2 are South Korea and China.
RT commented: “It won’t be easy for Japan to withdraw from the project, experts point out. Replacing Russian LNG from Sakhalin-2 would reportedly cost Tokyo $15 billion, with the price tag for imports jumping 35% if Mitsui and Mitsubishi opt out. But now Russia could make the decision for Japan and redirect its imports to other nations, such as China, India, or Vietnam.”