Russia and Japan ink 23 energy-related agreements including offshore and LNG

Russia and Japan deepened ties between the neighboring countries over the weekend as Russian President Vladimir Putin visited Japanese Prime Minister Shinzo Abe in Japan.

The talks were set in the hopes of restarting a dialogue over four islands that each country has claimed a right to since the end of World War II, and included a number of economic deals, 23 of which were centered on energy.

Russia has gradually been shifting its focus east following the implementation of sanctions against the country by the West over its annexation of Crimea. Prior to this weekend’s deals, the focus had been on China and India, with ties between Russia and Japan complicated by the territorial dispute over the islands, which Russia refers to as the Kuril Islands, and Japan calls the Norther Territories.

Energy deals have presented an avenue for the two countries to increase cooperation, however, even as the ownership of the islands remains in contention.

“Energy is a strategic area of Russia-Japan cooperation,” Putin said, noting Russia’s “reliable” LNG supplies, in excess of 8% of Japan’s needs.

Japan is also one of the top buyers of Russia’s ESPO and Sokol crude.

The deals included Russian state-owned oil giant Rosneft and a consortium of Japanese companies comprising comprising Marubeni Corporation, Japan Oil, Gas and Metals National Corporation (JOGMEC) and INPEX Corp. signing a Heads of Agreement for joint exploration, development and production offshore Russia, according to Rosneft.

“This enables the company to monetize its stakes in promising projects and accelerate their development. Engaging strategic partners, leaders of the global oil and gas industry, in Russian offshore projects will also ensure effective hydrocarbon exploration and production and allow sharing the geological risks between the parties,” the company said.

“In the event that hydrocarbons are discovered as a result of exploration in the area, which is in close proximity to Japan, the three Japanese companies expect that the project will promote energy security in Japan through the resultant benefits of greater diversity of the country’s energy sources and a short transportation distance,” the Japanese companies said.

Other key areas of potential cooperation include attracting Japanese investors to the construction of the second LNG plant in Skhalin, Far Eastern LNG, exploring the possibility of an “energy bridge” between Russia and Japan, and laying a Sakhalin-Hokkaido gas pipeline.

The Kuril Islands off the coasts of Russia and Japan

The Kuril Islands off the coasts of Russia and Japan

“The implementation of these large-scale projects will supply Japanese consumers with additional LNG and power at affordable prices and at the shortest distances,” Putin said.

Russia and Japan create $1 billion investment fund for economic development

To help finance the deals made between Russia and Japan last weekend, The Russian Direct Investment Fund (RDIF) and Japan Bank for International Cooperation (JBIC) signed a memorandum of understanding (MoU) to establish a Russia-Japan Investment Fund (RJIF). Under the MoU, RDIF and JBIC have agreed that each of them will invest $500 million for the joint investments through RJIF and a joint investment framework, according to a press release from RDIF.

JBIC also signed a MoU with state-owned gas giant Gazprom on general cooperation principles in financing joint projects with Japanese companies, and opened a €200 million ($209.4 million) credit line for Russia’s next LNG plant, Novatek’s Yamal LNG in the Arctic scheduled for a 2017 launch, reports Platts.


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