Russia’s Gazprom PJSC is not confident in Japan’s future as a growing natural gas user, which might damp the prospects of a proposed pipeline between the nations as Japanese Prime Minister Shinzo Abe travels to Moscow later this month.
“The demand situation in Japan is not clear yet for the next 15, 20, 25 years,” Gazprom deputy head Alexander Medvedev said.
Japan’s nuclear reactor restarts, use of coal and rising energy efficiency are making the outlook for gas uncertain, he said in an interview at the Gastech conference in Chiba, Japan.
Photo: Kyodo via Reuters
The world’s biggest exporter sees brighter prospects in China.
Abe, seeking to deepen economic ties with Russia in an effort to resolve a 70-year dispute over islands off Hokkaido, is expected to visit Moscow on April 27.
Russian gas supplies to Japan, including the possible pipeline between the nations, could be discussed during the visit, the Kommersant newspaper reported last month.
Russia has turned to Asia as a growth market for its energy exports to balance its reliance on European buyers. It has challenged Saudi Arabia as the biggest crude oil seller to China and is aiming to become the nation’s largest gas supplier through pipeline supplies from Siberia.
Meanwhile, the potential link to Japan, which has been under discussion for years, “has a history with its ups and downs,” Medvedev said.
Abe’s meeting with Russian President Vladimir Putin in December last year created “a very positive environment for business,” but the project requires “a deep feasibility study” by both sides, he said.
The pipeline would need a minimum capacity of 8 billion cubic meters a year and optimally carry 20 billion to 30 billion cubic meters, Medvedev said.
That volume would equal as much as about a quarter of Japan’s demand.
The nation is the world’s largest importer of liquefied natural gas, including from Russia.
Gazprom’s prospects both in China and Japan depend heavily on the price it is ready to offer, Hong Kong-based Nomura Holdings Inc head of Asia oil and gas research Gordon Kwan said.
“There is a place for Russian gas in Japan, but only if Gazprom can lower the price enough — perhaps by 20 percent to compete with Qatar and Australia,” Kwan said.
The same goes for China, which “does not want to put all supplies in one basket.”
Gazprom has at least two Asia-focused projects in the east of Russia, including a gas pipeline to China and an expansion of the Sakhalin-2 liquid natural gas project jointly owned by Royal Dutch Shell PLC, and Japan’s Mitsui & Co and Mitsubishi Corp.
While partners have been weighing an expansion of the Sakhalin plant for years, new production is seen only as soon as 2023 by Gazprom and in about 2025 by Mitsui.
“We see a lot of opportunities” for the Sakhalin venture, however “the market is already supplied,” Medvedev said.
There is still a “huge potential” for customers in China, India, Vietnam, Bangladesh, Pakistan and Kuwait, he said.
Japanese utilities have been using an increasing amount of coal instead of more-expensive gas and the nation’s gas needs are forecast to decline through 2021 due to returning nuclear power plants, flat electricity demand and growing use of renewable energy, according to last year’s outlook by the International Energy Agency.
Japanese regulators have cleared over a dozen nuclear units for operation under new safety rules following the 2011 Fukushima Dai-ichi nuclear power plant disaster, but public opposition, particularly through the nation’s courts, has slowed restarts to a crawl.
Only three of 42 operable reactors are online.
Abe supports resuming the nation’s reliance on nuclear power as a way to lower costly fossil fuel imports and cut carbon emissions.
All Gazprom’s planned routes to Asia, including the potential sub-sea link to Japan, could be fed by offshore fields that are part of Sakhalin-3 project.
While Gazprom has been in talks with Shell on transferring a stake in the project to the Hague-based company, there are so far no plans to invite Japanese partners, Medvedev said.
“Third parties are not on the agenda now,” he said. “It’s our strategic principle that we invite foreign companies to our upstream projects only as part of strategically important asset swaps.”
Even asset swap talks with Shell “is not an easy exercise,” Medvedev said.
One of the project’s key fields is targeted by US technological sanctions.
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