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22.06.2017 Author: Dmitry Bokarev

Japan Regards Russia as a Reliable Hydrocarbons Exporter

673452343242As you must know, Japan does not have enough natural resources to ensure its energy security without turning to any foreign players. At the same time, its closest neighbor – Russia possesses impressive hydrocarbon reserves and can be in the list of major exporters of those. Nevertheless, it is difficult to describe the volume of bilateral trade between the two states as impressive, in fact it’s the exact opposite. But it seems that the Japanese government has finally come to grips with the fact that it is missing out on enjoying the benefits of Japan’s geographic location, so Tokyo decided to step up its attempts to pursue economic cooperation with Russia.

In fact, talks about Japan’s increasing imports of hydrocarbons from Russia have been circulating for a long time. There’s no doubt that the Fukushima Daiichi nuclear disaster which resulted in the closure of the majority of nuclear power plants across Japan has made Russia even more attractive as a trade partner for Tokyo.

It’s true that Japan imports Russian liquefied natural gas (LNG), on top of taking part in the development of Sakhalin-1 and Sakhalin-2 oil and gas fields, and taking part in the construction of a LNG plant within the framework of the Yamal-LNG project. However, the level of bilateral cooperation in that area is miles away from reaching its full potential. Mind you that Russia’s share in the entire volume of Japan’s LNG imports barely reaches 8%. To this date Tokyo has been importing most of the LNG that it buys from Australia, Indonesia and the Middle East, in spite of the mind boggling shipping costs.

This situation is talking a tall on Japan’s budget and there’s no guarantees that Japan could be sure that it would get what it has paid for, since distant sea shippings always go hand-in-hand with certain risks. Also, it’s pretty much a gamble when you’re getting the resources of strategic importance from a limited number of suppliers, as it makes your dangerously dependent on your partners. Even if good relations are maintained between countries, there is always a possibility of unforeseen complications that may hinder the vital supplies.

Japan’s JFE Holdings had to learn this lesson the hard way, in spite of the fact that this company ranks second among local steel producers. To maintain its production levels any company in the steel business needs a lot of fuel. The most commonly used fuel in the steel industry is coking coal, since it’s cheap and reliable. Back in 2016 JFE Holdings acquired a total 60 million tons of this mineral, with more than 70% of this amount was purchased in Australia which has traditionally been among the major coal exporters to Southeast Asia. However, when a natural disaster damaged the Australian railway network back in March 2017, which obstructed the deliveries that were meant for JFE Holdings, which forced it to turn to Canada, China and the United States. It goes without saying that it had to buy large shipments of coal at a disadvantageous price. After this unpleasant incident Japan has once again realized the need to expand the number of suppliers to reduce its dependency on Australia. In May 2017, JFE Holdings announced plans to diversify imports of coking coal. The company’s management stated that among candidates for future suppliers one can find Canada, Mozambique and Russia. It is noteworthy that these days the Russian Federation is developing new coal deposits in the Far East, not far from Japan.

However, Japan’s steel industry is hardly the only industry that requires large amounts of coal to function properly. The Fukushima Daiichi nuclear disaster resulted in Tokyo building a large number of coal-driven CHP plants. In the coming years, Japanese coal imports should increase significantly, and it would only be profitable for Japan to buy coal in Russia.

It should be recalled that as early as 2016 negotiations were held between Tokyo and Moscow about the former making investments in the development of Russia’s Far Eastern ports to ensure that they maintain high transportation levels. Japan wanted to import coal from Yakutia in large volumes thus it decided to sign with a number of deals to ensure its energy security. However, the practical implementation of these plans is not going quite as as one would like. For example, the Japanese corporation Tosei Group through a subsidiary in April 2016 became a resident of the Free Port of Vladivostok with a view to constructing a transshipment complex for coal worth 60 billion rubles. The project was to be financed by the Japanese side. Additionally, construction of a terminal, capable of receiving up to 20 million tons of coal per year, was scheduled for early 2017, but it never started. The beginning of the construction works was delayed for a year, and it can now be made even partially operational by 2020. Despite the delay, the project is likely to be implemented, because the incident with the disruption of supplies of Australian coal shows that Japan really needs diversification of imports.

In April 2017, Russia’s President Vladimir Putin held a meeting with Japan’s Prime Minister Shinzo Abe, that was attended by the Russian Energy Minister, Alexander Novak. It’s been reported that the parties were discussing such projects as the creation of the Sakhalin-Hokkaido gas pipeline, along with a maritime energy bridge for electricity transmission that could be constructed in the foreseeable future. Soon after this meeting, the Japanese Minister of Economy, Trade and Industry Hiroshige Seko said that Japan is not satisfied with its dependence on gas and oil shipments from the Middle East, since the political instability of the region has been constantly threatening Japan’s energy security. That is why Japan is really interested in increasing supplies of Russian LNG.

In conclusion, one can note that in spite of the slow development of Russian-Japanese relations in the energy sector, the countries have a great future ahead of them. Japan has already begun rebuilding its nuclear power capabilities , but the demand for electricity overshadows any measure that Tokyo has put in play so far. That is why one can be convinced that the Russian-Japanese energy trade and cooperation will reach a new level.

Dmitry Bokarev, expert politologist, exclusively for the online magazine “New Eastern Outlook.

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