As discussed in a recent article by Chief Resource Analyst, Karim Rahemtulla, the $400-billion natural gas deal between Russia and China is a landmark agreement.
But Vladimir Putin may not be done making deals…
Recognizing that sanctions against Russia hold little weight, a natural gas deal more than a decade in the making between Russia and Japan may be next on Putin’s agenda.
Japanese Politicians Pushing for Russia Deal
This deal is also a top priority for many Japanese politicians.
A group of 33 lawmakers is pushing hard to revive efforts for a natural gas pipeline from Russia to Japan. The expectation is that the pipeline will be a key item on the docket when Putin and Japan’s Prime Minister, Shinzo Abe, meet this fall.
The nearly $6-billion pipeline would stretch from Russia’s Sakhalin Island to Japan’s Ibaraki prefecture, northeast of Tokyo. Natural gas, produced by Gazprom (OGZPY), from Sakhalin would be transported via the Sakhalin-Khabarovsk-Vladivostok pipeline to Japan.
The pipeline is expected to transport as much as 20 million cubic meters (mcm) of natural gas annually.
Japan believes that Russian gas will cost less than the massive amounts of liquefied natural gas (LNG) it imports currently from places like Qatar via tankers.
Japan’s Major Need for Natural Gas
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A deal like this is highly foreseeable when one considers Japan’s energy needs.
Most of its nuclear power capacity is still shut down following the March 11, 2011 Fukushima disaster.
About half of Japan’s nuclear power capacity may never be restarted, thanks to new and very stringent safety standards.
The end result of Fukushima for Japan?
It turned the world’s biggest importer of LNG into an even bigger one.
The country purchased almost 87.5 million metric tons (mmt) of LNG, costing more than ¥7 trillion, in 2013.
Yet, nearby Russia supplied only 9.8% of Japan’s LNG.
The proposed gas pipeline between the two countries would change that quickly.
Gas Pipeline Economics
If the pipeline is to be used to its full capacity, the gas received will be the equivalent of 15 mmt of LNG annually. That’s equal to 17% of Japan’s LNG imports.
Even if Japan pays the going rate on natural gas (it’s likely to get a sweetheart deal like China), the money it’ll save on LNG transports will drastically lower the country’s energy bill.
If Putin and Abe do sign off on the deal, pipeline construction will likely take between five and seven years to complete.
And there’s more…
Japanese utilities have shown great interest in importing more LNG from Russia.
Japan will likely make large purchases of LNG from Gazprom’s nearby Vladivostok terminal later in this decade.
The two actions will tie the countries together, energy-wise, for a long time to come, no matter the economic sanctions.
And “the chase” continues,