Analysis: Japanese PM Kishida decided weeks ago to keep Russian gas
01/04/2022 01:08
(Repeats March 31 story with no changes to text)
By Yoshifumi Takemoto, Yuka Obayashi and Ritsuko Shimizu
TOKYO, March 31 (Reuters) - Japanese Prime Minister Fumio
Kishida's announcement on Thursday that he would not abandon a
massive Russian gas project was decided weeks ago when he told
top officials in private he wouldn't risk Japan's energy
security, three sources said.
Kishida assured his trade and economy minister, Koichi
Hagiuda, and other officials during meetings in early March that
he would stay in the Sakhalin-2 liquefied natural gas (LNG)
project because leaving threatened the economy, the sources
said.
The sources with knowledge of those meetings declined to be
identified because they are not allowed to speak on the record.
Kishida on Thursday told parliament "it is not our policy to
withdraw" from Sakhalin-2, the clearest public comments yet on
the offshore project.
The details of the March meetings and the subtle shift in
public messaging by both Kishida and other government officials
in the weeks that followed help illustrate the difficult balance
the Japan has had navigating its response to Russia's Ukraine
invasion with other Group of Seven (G7) nations.
Even as it targets Russian banks and oligarchs with
sanctions, Japan has less leeway than some of its allies to cut
ties to Russian gas, on which it has become more reliant since
shutting down nuclear reactors after the 2011 Fukushima
disaster.
Faced with national elections in July, Kishida wants to
avoid soaring fuel bills and the risk of blackouts. In the
immediate aftermath of the invasion - which Russia calls a
"special operation" - Japan initially emphasised the need to
move in tandem with the G7, while maintaining a stable supply of
energy.
But in the weeks that followed, policymakers increasingly
talked about how Japan's stakes in LNG projects could be at risk
of seizure and the importance of energy security.
Kishida's announcement may also represent a victory for the
trade ministry's energy policy over foreign ministry diplomacy,
and could soothe investors in Japanese trading houses that own
stakes in Sakhalin-2 and other projects in Russia. urn:newsml:reuters.com:*:nL3N2VC1AF
LNG DEPENDENCE
For more than a decade, energy-poor Japan has tapped Russian
gas to cut its Middle East oil reliance and to make up for lost
nuclear capacity.
Although it accounts for a small portion of Japan's LNG, the
Russian gas costs a fraction of spot market rates and, along
with gas from Australia and Southeast Asia, has boosted the
amount of energy consumption under Japan's control to more than
a third from less than a quarter a decade ago.
If Japan were forced to replace Russian LNG with gas bought
on the spot market, that would mean an additional cost of up to
3 trillion yen ($25 billion), at the current spot price, a
senior energy agency official, who asked not to be identified,
said.
Japanese gas and electricity companies use Russian LNG.
Hiroshima Gas, from Kishida's hometown, relies on it for half
its supply. Overall, LNG accounts for a quarter of Japan's total
energy mix and generates 36% of the country's electricity.
"Even if supply can be secured, the cost of gas will rise
tremendously," said Ken Koyama, senior managing director at the
Institute of Energy Economics.
NATIONAL SECURITY FEARS
For some government officials, the big fear is Japan would
lose the right to tap gas from Sakhalin, undermining national
security by threatening energy independence.
Oil remains Japan's biggest energy source at around two
fifths of consumption, and nearly all is transported from the
Middle East along sea lanes that pass through waters patrolled
by the Chinese navy.
If Tokyo were to ban Russian gas, Beijing could also step in
to buy it, one of the sources said. China has called for an
immediate ceasefire in Ukraine but has refused to explicitly
condemn the invasion.
Energy independence had long been a concern for Japan, and
"could eventually cause tension with Europe and the United
States", the energy agency official said.
Still, Kishida may have to reconsider if France pulls out of
the Arctic LNG 2 gas development project in Siberia, which is
10% owned by French oil major TotalEnergies TTEF.PA , another
one of the sources said.
The United States, a close ally, has so far praised Tokyo's
sanctions, including a recent ban on Russian gold and a pledge
to stop potential sanctions-busting using digital assets, as
"unprecedented".
So far, the G7 has only agreed to reduce dependence on
Russian energy rather than impose an immediate halt to energy
purchases. Germany in particular is wary of banning Russian
supplies that account for about a third of its gas.
But as outrage grows over Ukraine, other G7 countries could
push Kishida to halt Russian gas.
"If the rest of the G7 decide to ban Russian energy imports
then Japan must do so too. If the G7 decides not to, then Japan
can avoid doing anything," said Takayuki Homma, chief economist
at Sumitomo Corp Global Research.
($1 = 122.1400 yen)
(Reporting by Yoshifumi Takemoto, Ritsuko Shimizu and Yuka
Obayashi; writing by Tim Kelly; Editing by David Dolan and Nick
Macfie)
((tim.kelly@thomsonreuters.com; +813-6441-1311;))