Russia Turns Wary on Japan Gas Future as Abe Heads to Moscow

Russia’s Gazprom PJSC isn’t confident in Japan’s future as a growing natural gas user, which may damp prospects of a proposed pipeline between the countries as Premier Shinzo Abe travels to Moscow later this month.

“The demand situation in Japan is not clear yet for the next 15, 20, 25 years,” said Alexander Medvedev, deputy head of the Kremlin-backed exporter. The country’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. 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-old 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, Russia’s 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 seller to China and is aiming to become the country’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 during an interview Thursday. Abe’s meeting with Russian President Vladimir Putin in December 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, according to Medvedev. That volume would equal as much as roughly a quarter of Japan’s demand. The nation is the world’s largest importer of liquefied natural gas, including from Russia.

To read more on Russia’s plans to supply China with gas, click here

Gazprom’s prospects both in China and Japan will depend heavily on the price it’s ready to offer, said Gordon Kwan, head of Asia oil and gas research at Nomura Holdings Inc. in Hong Kong.

“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,” he 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 Russia’s Far East, including a gas pipeline to China and an expansion of the Sakhalin-2 LNG project, co-owned by Royal Dutch Shell Plc along with 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 around 2025 by Mitsui.

“We see a lot of opportunities” for the Sakhalin venture in future, however “the market is already supplied,” Medvedev said. There’s still a “huge potential” for customers in China, India, Vietnam, Bangladesh, Pakistan and Kuwait, he said.

Forecast Decline

Japan’s utilities have been using an increasing amount of coal instead of more-expensive gas, and the country’s gas needs are forecast to decline through 2021 due to returning nuclear power plants, flat electricity demand and growing use of renewables, according to last year’s outlook by the International Energy Agency.

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