A new Kremlin decree on a joint natural gas project puts Japan in a difficult position

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Tokyo finds itself in a difficult position after Russia’s decision to transfer all rights to a joint gas project to a new state-owned company

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Japan said today that its energy interests should not be “hindered” following a new Kremlin decree that would transfer all rights to a major natural gas project involving Japanese companies to a state-owned Russian company.

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Mitsui & Co and Mitsubishi Corp together own 22.5% of the shares in the project to build the Sakhalin-2 pipeline, located in the Russian Far East. The liquefied natural gas from there is mainly transported to Japan.

Shortly after the Russian invasion of Ukraine at the end of February, the British energy company Shell decided to stop its activities in Russia and withdrew from the project to build the Sakhalin-2 pipeline in which it participated with a percentage of 27.5%.

Japan, although it has adopted Western sanctions against Moscow, wanted to stay in the strategically important project, as it is too dependent on fossil fuel imports. About 8% of the liquefied natural gas that Japan imports comes from Russia.

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

Russian energy giant Gazprom will retain a 50% stake in the project, while foreign companies have a month to decide whether to stay in the project, and must also get the go-ahead from Moscow.

The decree specifies that the Russian government will “conduct an economic, ecological and technical assessment of the activities” of foreign companies involved in the Sakhalin-2 pipeline in order to determine “the extent of the damage caused” and may seek compensation.

Japan is “carefully examining” the Kremlin’s decision and its impact on imports of liquefied natural gas from Russia, Deputy Chief Cabinet Secretary Seiji Kihara said today.

A little later, Japanese Prime Minister Fumio Kishida estimated that imports of Russian liquefied natural gas from Japan would not “immediately stop” after Putin’s decree.

SOURCE: APE-ME

Source: Capital

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