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Sakhalin-Japan gas pipeline: reality or dream?

Japanese business does not hurry with the realization of a tempting idea

Sakhalin-Japan gas pipeline: reality or dream?

Valery Kistanov

Head of the Center for Japanese Studies of the Institute of Far Eastern Studies
In the past two years, political ties between Russia and Japan have noticeably intensified, including at the highest level, the center of which is negotiations on a territorial problem related to Tokyo's claims to the four islands of the southern Kuriles. They went over to the Soviet Union as a result of the Second World War. The solution to this problem, that is, in the opinion of official Tokyo, the receipt of the said islands back by Japan in one form or another, must certainly become a "prelude" to the signing of a peace treaty between the two countries.

The buildup of economic cooperation between Moscow and Tokyo, according to Russian and Japanese politicians, can create a favorable atmosphere for finding a mutually acceptable solution to the territorial dispute. However, despite the efforts of the governments and business circles of both countries, reality is currently showing a decline in the importance of Russia and Japan for each other as economic partners. This is manifested in a drop in trade between the two countries in recent years and a decrease in Japanese accumulated investment in the Russian economy. And this is in the complete absence of Russian capital in the Japanese economy.

Against this background, megaprojects have been circulating in relations between the two countries for several years, which could potentially become breakthroughs in economic relations between Russia and Japan and lead to their qualitative and quantitative growth. We are talking about the construction of a gas pipeline and an energy bridge between Sakhalin and Japan. In the outgoing year, through the mouth of First Deputy Prime Minister I. Shuvalov, the idea of ​​building a Sakhalin-Hokkaido bridge, along with a bridge connecting Sakhalin with the mainland, was added to them. To date, thanks to the efforts of both sides, the most elaborated project is the Russian-Japanese gas pipeline, but even here everything is not so simple.

According to Russian and Japanese media, the 1,5 thousand km gas pipeline will run along the seabed, linking Sakhalin with the island of Hokkaido and further with the main island of Honshu. It will cost about $ 6 billion and will be able to pass through itself up to 25 billion cubic meters of natural gas per year. According to estimates, it could be commissioned as early as 2022. As a result, Japan, which is the world's largest importer of liquefied gas, would receive natural gas 2,5 times cheaper than LNG.

However, apparently, there is a huge distance from the concept of the project to its implementation. So far, this project has not received the approval of the main participant from the Russian side - the company "Gazprom". Doubts about the expediency of the project were also expressed by the mouthpiece of the Japanese business community, the Nikkei newspaper, which published an article in its August 3 issue entitled “Japan-Russia gas pipeline mostly a pipe dream”. The headline is built on the indescribable play of the English words "pipeline" and "pipe dream" into Russian, but the meaning is that the Japanese-Russian gas pipeline is practically a pipe dream. Source: Nikkei, 03.08.2017.

As the newspaper writes, the proposed gas pipeline connecting Japan and Russia remains in limbo, despite the fact that it was discussed at the summit of Japanese Prime Minister Shizo Abe and Russian President Vladimir Putin in April this year (during the visit of the Japanese Prime Minister to Moscow - EastRussia). The newspaper acknowledges that the two governments are aware of the difficulties facing the project in terms of profitability and other areas, but they supported the idea to demonstrate, at least outwardly, that they are trying to strengthen bilateral economic ties.

According to Nikkei, a joint study of the project was carried out by a group of MPs from the ruling Liberal Democratic Party and Japan Oil, Gas and Metals National Corp. On the Russian side, according to the newspaper, one of the energy companies took part in it (apparently "Gazprom" - VK). The project involves the construction of a 1500 km pipeline to transport natural gas from the southern tip of Sakhalin, Russia's natural gas-rich region, to the Japanese central region of Kanto via Hokkaido, the main island in northern Japan, and the Tohoku region. The project is estimated at $ 6 billion.

The article says that while gas-fired power plants currently generate more than 40% of all electricity in Japan, the country relies entirely on costly imports of liquefied natural gas. According to the calculations of Japanese experts, since natural gas can be transported through a pipe without its primary processing, the cost of electricity production in the country can be reduced by 30-40%.

Japanese and Russian energy experts, the business newspaper recalls, have long viewed the pipeline as unrealistic. However, some time ago Russia informed Japan about its readiness to negotiate about it. The pipeline has attracted attention as Abe and Putin agreed during the latter’s visit to Japan in December 2016 to reaffirm mutual interest and begin a detailed study of it. When Abe and Putin met again in April, both leaders reaffirmed their commitment to the project.

As a result of the agreement reached at the highest level, the energy circles of Russia began to treat the project more warmly. However, difficulties remain. The newspaper refers to them, for example, the fact that both countries still have to decide on a gas field where gas will be produced for it. Fields on Sakhalin have already been reserved for Asia. The newspaper cited an unnamed Russian energy expert who said there was no surplus gas for the planned pipeline.  

Meanwhile, Japanese experts warn that the construction of the pipeline and gas supply network could cost much more than initially estimated. Energy companies in Hokkaido have already spent large sums of money on the construction of LNG terminals, and few of them would welcome the pipeline. An executive at a Japanese trading company said the pipeline was an "ultra-risky" project and would be avoided by private companies. But Tokyo and Moscow intend to continue studying it.

Behind the ostentatious renewed interest in the pipeline, the Nikkei believes, each side has its own political calculus. This will allow the Japanese government to demonstrate progress in the development of economic relations between the countries, hoping that this step will have a positive impact on negotiations on the disputed islands near Hokkaido.

The Putin administration, for its part, sees the planned pipeline with a key US ally as a propaganda victory. She can now claim that Russia is gaining diplomatic points with respect to the United States and Europe, which show no signs of lifting the sanctions, the authoritative Japanese newspaper concluded.

In a recent conversation with the author of this line, Japanese sources close to Russian-Japanese relations confirmed that the gas pipeline, like two other megaprojects connecting Sakhalin with Japan (an energy bridge and a railway bridge), is unlikely to arouse interest among Japanese big business, until then until they are convinced of their commercial viability. Hardly anyone can tell when this will happen.
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