Japan Turns To Russia For LNG

Russia and Japan are sealing an agreement to construct a liquefied-natural-gas shipping terminal in, and build a natural gas pipeline from Vladivostokin to, Niigata, Japan. Russian President Vladimir Putin and Japanese Prime Minister Yoshihiko Noda are expected to give their formal backing to a $13 billion terminal in Vladivostok that will export LNG to Japan. Actual construction of the terminal will depend on reaching an agreement on the price of the gas to be shipped. If all goes smoothly, the terminal should be completed by around 2018, and will produce 10 million tons of LNG a year, equivalent to about 12% of Japan's annual imports, according to Itochu Corp., a main Japanese partner in the joint venture.

The proposed construction of a Vladivostok pipeline to Japan would efficiently and cost effectively deliver the natural gas. Japan now gets all of its natural-gas imports by boat, in expensive liquefied form.

The most likely route for a Japan-Russia pipeline link would be between Vladivostok and Niigata, on the coast of central Japan across from Russia. The task would require laying a 500-mile pipeline across the ocean as deep as 1.2-to-1.9 miles—presenting major technical and financial challenges.

The biggest hurdle for any deal with Russia is the pricing of natural gas. Russia wants to set prices near the going spot rates in Asia, which are the highest in the world—boosted by Japan's rush for alternative fuel to nuclear power.

 

 

Russia is poised to become one of Japan's biggest energy suppliers from a relatively minor provider of oil, gas and coal now. Japan imports 90% of its crude oil and 25% of LNG from the politically volatile Middle East, a situation Japan is working hard to change. It imports 9% of its gas from Russia. Russia, meanwhile, exports 80% of its energy to Europe, a region with dim prospects for economic growth because of the sovereign-debt crisis. Russia is the world's second-largest natural-gas producer, with the largest amount of known reserves.

The flurry of business activity in Vladivostok highlights a shift in Japan's approach to the world that has accelerated after the March 11, 2011, disasters sidelined most of the country's nuclear-power plants, sending the country's utilities scrambling to procure alternative sources of energy.

The government even unveiled a "resource-diplomacy strategy" in June, which calls for targeting diplomatic efforts at key resource-rich countries, such as Russia and Mongolia, providing economic assistance for things like infrastructure development and clean-energy technology. As part of this strategy, Japan signed an agreement with Kazakhstan for joint development of rare earth metals, key ingredients for high-tech products.  (WSJ, 9/4/2012)