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Analytics // Energy

Japan-Russia gas pipeline mostly a pipe dream

07 August 2017 , 00:01Takayuki TanakaNeftegaz.RU570

A proposed natural gas pipeline linking Japan and Russia remains on hold despite being discussed at a summit meeting between Japanese PM Shinzo Abe and Russian President Vladimir Putin in late April.

The 2 governments are aware of the difficulties facing the project in terms of profitability and other factors, but have kept the idea alive to show that, at least superficially, they are trying to strengthen bilateral economic ties.

A joint study by a group of Japanese lawmakers in the ruling party, Japan Oil, Gas and Metals National Corp. and a Russian energy company, envisions building a 1,500-km pipeline to transport natural gas from the southern tip of Sakhalin - a Russian island rich in gas resources - to Japan's Kanto region via Hokkaido, Japan's main island in the north, and the Tohoku region. The project is estimated to cost $6 billion.

While gas-fired power plants now produce more than 40% of Japan's total electricity, the country relies entirely on costly maritime transport of LNG.
Since raw natural gas can be transported by pipeline without first processing it, power generation costs can drop by 30% to 40%.

Unrealistic, unwanted
Japanese and Russian energy experts have long regarded the pipeline as unrealistic.
In recent years, however, Russia has confided with Japan of its readiness to hold talks about it.

The pipeline received attention because Abe and Putin agreed during the latter's visit to Japan last December to confirm mutual interest and start detailed studies.
When Abe and Putin met again in April, the 2 leaders reaffirmed their commitment.

The Russian energy industry is warming to the project as a result of the accord.
Still, hurdles remain. For example, the 2 countries have yet to pick a gas field to tap.

Fields in Sakhalin have already been reserved for Asia, and a Russian energy expert said there is no surplus gas for the planned pipeline.

Meanwhile, Japanese experts warn that building the pipeline and a gas supply network may cost much more than estimated.
Energy companies in Hokkaido have already spent huge amounts on construction of LNG terminals, and few would welcome the pipeline.

An executive at a Japanese trading firm said the pipeline is an ultra-high risk project that private companies would avoid.
But Tokyo and Moscow intend to continue studying it.

This enables the Japanese government to feign progress in advancing economic relations between the countries, calculating that the move will favorably affect negotiations over disputed islands off Hokkaido.

The Putin administration, for its part, considers the proposed pipeline with a key U.S. ally a propaganda victory.
He can now claim that Russia is scoring diplomatic points against the U.S. and Europe, which show no sign of lifting punishing sanctions.

Greater weight is given to the political publicity of the project than its feasibility, said Mikhail Krutikhin, partner and analyst of Russian private energy research firm RusEnergy.

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