Tokyo urges Japanese firms to keep shares in Russian LNG project

Japanese authorities believe stakes in Sakhalin-2 will help ensure continued gas supplies

The Japanese government has called on Mitsubishi and Mitsui to keep their shares in the Sakhalin-2 Liquefied Natural Gas project after its transfer to a Russian operator, Japanese news outlet The Nikkei reported on Saturday.

“The companies have shares [in Sakhalin-2], so we agreed that they should hold them tight,” Japanese Minister of Economy, Trade and Industry Koichi Hagiuda told reporters after meeting with Prime Minister Fumio Kishida, as cited by the news outlet.

Sakhalin-2 produces 10 million tons of LNG per year, and about 60% of the project’s output is exported to Japan. On June 30, Russian President Vladimir Putin signed a decree according to which Sakhalin-2 operator Sakhalin Energy Investment Company, in which Japan’s conglomerates Mitsui and Mitsubishi own 12.5% and 10%, respectively, becomes the property of a company that will be created by the Russian government.

According to The Nikkei, Tokyo can continue to buy gas without participating in the project under its new operator, as long as existing contracts are in place. However, there is a possibility of a disruption in supplies, and Japanese authorities believe that by retaining their stakes in the project, Mitsui and Mitsubishi could ensure the continued flow of Russian LNG to the country. At the same time, the newspaper notes that “there is no guarantee that the new operator will continue to reliably supply LNG to Japan,” even if Mitsubishi and Mitsui remain among the shareholders.

The current shareholders of Sakhalin Energy must agree within a month to receive a stake in a new LLC. If they refuse, the government will evaluate their shares and sell them to a Russian legal entity. In addition to Japanese companies, Sakhalin Energy’s shareholders include Shell (around 27.5%) and Gazprom (around 50%). The latter will receive a share in the new operating company proportional to its current holdings. Shell, however, announced in February that it would withdraw from the project.

Mitsubishi and Mitsui said they will make a final decision regarding their participation in the project when Russia clarifies the terms, including the timing of the implementation of Putin’s decree, and investment conditions.

Earlier, the Russian president’s press secretary, Dmitry Peskov, said that there were no grounds for stopping LNG supplies to Japan in connection with Putin’s new decree on Sakhalin-2.

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