Russia considering natural gas pipeline to Japan

By bne IntelliNews October 16, 2014

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Russia is proposing to build a natural gas pipeline to Japan's northern island of Hokkaido from Russia's island of Sakhalin, Japan's Nikkei paper reported on October 14. 

Citing unnamed diplomatic sources, Nikkei said that Russia presented the plan in September. “Construction of a pipeline will depend on the Ukrainian situation and talks over the Northern Territories [Russia's Kuril Islands claimed by Japan],” the source said.

As late as May 23 a group of 33 Japanese lawmakers were lobbying the government of Shinzo Abe to push the pipeline in talks with Russian President Vladimir Putin in Tokyo scheduled for this autumn, which were later cancelled, according to Japanese media.

The 1,350km pipeline could transport as much as 20bn cubic meters of natural gas per year, which would increase Russia's share of Japan's gas supply from currently nearly 10% to 17%, according to Naokazu Takemoto, the Japanese MP who headed the group lobbying for the pipeline, as earlier quoted in Nikkei.

The big gain for Japan would be price. “The price of natural gas will be two times lower than the export of liquefied natural gas,” Takemoto said, as reported in Nikkei. LNG is significantly pricier than piped gas, requiring expensive liquification and regasification plants, while piped gas comes with volume rebates.

Japan's imports have soared in the wake of the 2011 Fukushima nuclear accident, which led to Japan taking all of its nuclear power generation capacities offline. As a result, Japan now accounts for one third of world shipments of liquefied natural gas (LNG), the Nikkei said.

While offering cheaper gas than LNG, such a pipeline deal is the political equivalent of a marriage, energy experts quip. Such a tie-up between Japan and Russia would mark a major step in Russia's ongoing pivot towards Asia, but would be unimaginable if not flanked by diplomatic initiatives to solve a longstanding territorial dispute between Japan and Russia over Russia's Kuril Islands  - taken by Russia at the end of the second world war, and claimed by Japan ever since.  Japan's claims to the Kuril Islands, which it refers to as the Northern Territories, mean that the two countries have failed to sign a peace treaty ending the Second World War. 

But 2015 will mark the 70th anniversary of the end of the war, and analysts believe the anniversary may focus minds in Tokyo and Moscow on finally reaching a settlement. Both Russia and Japan are casting around for new friendships: Russia has fallen out with the EU and US over its aggression in Ukraine, with tit-for-tat sanctions ratcheting up tension. 

But Japan for its part is increasingly worried about the rise of China, in the context of tensions over disputed uninhabited islands in the South China Sea. Given that Moscow agreed a massive $400bn gas deal in May 2014 with China, Japan will be keen to avoid Russia being sucked in China's orbit, heightening readiness to sign a pipeline deal with its giant energy-rich neighbour.

Japan has sided with its traditional allies in the West over Ukraine, and as a result cancelled talks with Moscow scheduled for the autumn. But Putin may meet with  Abe on the sidelines of the ongoing Asia-Europe summit in Milan this week,  Russian presidential aide Yury Ushakov said on October 15, according to Interfax. If not, Putin and Abe have "a clear agreement that a bilateral meeting will take place as part of the APEC summit in China on November 10-11," Ushakov said.

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