Japan surprised by Russian decree on joint gas project

Japan said Friday its energy interests should not be “hindered” as a new Kremlin decree provides for the transfer of rights to an oil and gas project involving Japanese companies to a Russian company.

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Mitsui & Co and Mitsubishi Corp together hold a 22.5% stake in the Sakhalin 2 project in the Russian Far East, whose liquefied natural gas (LNG) is mainly supplied to Japan.

Shortly after war broke out in Ukraine in late February, British oil giant Shell decided to spin off its assets in Russia, including its 27.5 percent stake in Sakhalin-2.

“We are aware of the decree and are assessing its implications,” the oil major responded in a statement sent to AFP on Friday. “As a shareholder, Shell has always acted in the best interests of Sakhalin-2 and in accordance with all applicable legal requirements,” she added.

Shell announced in May during its first-quarter results presentation that it had taken a $1.6 billion impairment related to Sakhalin-2.

In joining Western sanctions against Moscow, Japan had said it wanted to stick with this strategic project as it is a country heavily dependent on its fossil fuel imports. About 8% of the LNG imported by Japan comes from Russia.

The decree, signed by Russian President Vladimir Putin on Thursday, provides for the transfer of all Sakhalin-2 shares to a new Russian company set up by the state.

Russian giant Gazprom must retain its current 50 percent stake, while foreign partners have a month to say whether they want to take stakes in the new company, and if so, get the green light from Moscow, the statement said Text.

The decree also states that the Russian government will conduct “a financial, environmental and technical audit of the activities” of foreign companies involved in Sakhalin-2 to determine “the extent of the damage caused” and possibly seek compensation from them.

Japan is “carefully considering” the Kremlin’s decision and its impact on LNG imports from Russia, Japanese government Deputy Secretary-General Seiji Kihara said at a news conference on Friday.

“In general, we believe that our resource (energy) interests should not be hampered,” added Mr. Kihara.

Japanese Prime Minister Fumio Kishida said later in the day that the decree would not “immediately stop” Japanese imports of Russian LNG.

“In the medium and long term, we will do everything we can to ensure a stable energy supply from other LNG suppliers outside of Russia by buying on the spot market (spot market, editor’s note) and reducing demand if necessary,” said the Japanese Minister for Economic Affairs Koichi Hagiuda.

Mitsui & Co and Mitsubishi Corp, whose shares fell more than 5% on Friday on the Tokyo Stock Exchange, are also reviewing the details of the Russian decree and consulting with the Japanese government, according to spokesmen for the two companies interviewed by AFP.

Japan is currently experiencing scorching temperatures that are eroding its power grid. The government has repeatedly warned of possible power outages in the Tokyo metropolitan area this week.

Businesses and individuals in Japan have been asked to limit their electricity consumption for three months starting this Friday.

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