By Antoni Slodkowski and James Topham
TOKYO, April 19 Russia and Japan are in intense
talks on expanding gas-supply agreements ahead of a summit later
this month, moving ever closer to a breakthrough that could
redraw the East Asia energy map, sources involved in the
discussions told Reuters.
The talks between the second largest gas producer and the
biggest liquefied natural gas importer could receive official
sanction on April 29 when Prime Minister Shinzo Abe visits
President Vladimir Putin in Moscow. Any official approval on
increasing sales would come at the expense of other LNG
suppliers, such as Australia, Qatar and Malaysia.
Russia, soon to face the competitive threat of cheap U.S.
shale gas exports, wants to lock down more customers as its
monopoly gas exporter Gazprom is being undercut in
Europe by LNG imports. It also sees further LNG sales to Asia as
a key component to its plan to send East Siberian gas down a
pipeline to China -- if it can ever agree on pricing with the
nation that is potentially its biggest customer.
"The talks have picked up steam dramatically," said a senior
government official. "I think the rules of the game are about to
change big time. Gazprom, which until now has had the monopoly
and has been elusive, is getting a move on."
Japanese trade ministry officials are downplaying
expectations for the Abe-Putin meeting. Japan and Russia have
been close to expanding oil and gas ties before, only to have a
dispute over islands in the North Pacific derail progress.
Gazprom representatives, however, came to Japan last week to
market gas from its $38 billion Vladivostok LNG project to
Japanese energy buyers, three sources with the knowledge of the
matter said. It was their first tour of the Japanese client base
for this project and no agreements have been reached.
Gazprom's CEO Alexei Miller also met with Trade Minister
Toshimitsu Motegi in Tokyo on Wednesday, and held talks with
Japanese plant constructors interested in the project, Chiyoda
Corp and JGC Corp, according to sources with
knowledge of the talks.
"Especially after Putin very clearly said that he wants to
boost the share of LNG (exports to Asia) many people are coming
hell for leather to (convince) Japan," the government official
Gazprom competitor Rosneft, also looking to secure
buyers for liquefied gas exports, on Wednesday signed a
preliminary agreement on joint oil and gas developments with
Marubeni Corp. And other Japanese and Russian industry
and government officials wound up meetings this week in Fukui on
Japan's west coast.
"The Russians are under a lot of competitive pressure," said
John McCreery, Asian head of oil and gas at Bain & Co. "The
urgency is on the Russian side to make something happen."
Projects being promoted besides Gazprom's LNG terminal in
the eastern Siberian port of Vladivostok include further
developments of oil and gas fields off Sakhalin island and gas
projects in Yamal in northern Russia.
The Fukushima nuclear crisis of 2011 spurred Japan's energy
companies to scour the world for supplies. The country now
consumes a third of global LNG shipments, which helped to push
it to a record trade deficit in January.
Russian gas lies on Japan's doorstep and already makes up
about 10 percent of its LNG imports. In 2012, Russia was the
fourth largest supplier of LNG to Japan, behind Australia, Qatar
As the Fukushima crisis was unfolding two years ago, Putin
invited the CEOs of Mitsubishi Corp and Mitsui & Co
to Sakhalin to discuss closer cooperation on energy
ties, according to sources directly involved in the discussions.
The offer was rebuffed due to the sensitivity of the
situation, the sources said. But those early contacts and other
offers of support as Japan grappled with energy shortages, may
come to fruition when Abe meets Putin in Moscow at the end of
the month, the first summit between the countries in 10 years.
"Energy talks between Tokyo and Moscow have been going on
since the 1970s, but this time they're for real," said Nobuo
Tanaka, former head of the International Energy Agency and a
senior adviser at a government-affiliated research centre.
First, though, Putin and Russia will have to decide whether
to make an exception to Gazprom's exclusive gas export rights,
to give Rosneft and Novatek, which has plans for
extracting gas from the peninsula of Yamal in northern Russia, a
chance at exports.
Rosneft, despite the agreement signed with Marubeni and a
proposal to build a $15 billion LNG plant at Sakhalin-1 north of
Japan with Exxon Mobil Corp, has no rights to export
Russia now ships gas to Japan from its only LNG terminal,
Sakhalin-2, where Mitsubishi and Mitsui are junior partners with
Gazprom and Royal Dutch Shell.
The Japanese partners have been pressing for an expansion
there and the existing terminal does present the cheapest,
quickest way to increase Russian LNG sales. That and a
Vladivostok project built on pipeline sales of East Siberian gas
to China and LNG shipments to Japan, may be enough to give
Gazprom an edge in the efforts to open a new LNG front in the
Russian Far East.
Still weighing on many minds are Japan's claims on islands
that Russia seized at the end of the Second World War. The issue
has previously disrupted improving commercial relations, but the
Abe administration is keen to resolve the dispute, and some
Japanese officials are considering pairing further economic
cooperation with a deal on the contested islands.
"If we think about the islands and energy as a package, as a
broader deal it's a completely different calculation," said a
senior government official.