Japan has decided to maintain its interests in the Sakhalin 2 oil and liquefied natural gas project in the Russian Far East, with the government coordinating with two Japanese stakeholders to that end, government sources said Saturday.
With the plan, Mitsui & Co. and Mitsubishi Corp. would keep 12.5 percent and 10 percent stakes, respectively, despite Russian President Vladimir Putin's signing of an order that sets up a new operating company to tighten its grip on the project.
Putin's action is seen as retaliation against Japan and other countries for sanctions they slapped on Russia over its military aggression in Ukraine.
It is unknown whether Tokyo can maintain its stakes as Moscow will have the final say about the continuation of investments by the two Japanese trading houses.
Japan, reeling from the effects of higher energy prices following Russia's war in Ukraine, might be forced to source LNG from the market at higher prices. Around 9 percent of Japan's LNG imports come from Russia, almost all of them supplied by Sakhalin 2.
In a meeting Friday, Prime Minister Fumio Kishida and Koichi Hagiuda, the minister of economy, trade and industry, affirmed a plan to maintain Japan's interests in Sakhalin 2.
The Kishida government has stressed the need to retain interests in oil and gas projects off Sakhalin as they are vital to securing stable energy supplies amid surging energy prices.
Besides Sakhalin 2, Japan also invests in the Sakhalin 1 project, with Sakhalin Oil and Gas Development Co. -- a Japanese consortium involving the Ministry of Economy, Trade and Industry, trading houses Itochu Corp. and Marubeni Corp., and others -- holding a 30 percent stake.
On June 30, Putin signed a decree to set up a new operating company for Sakhalin 2 affiliated with Russian energy company Gazprom, effectively putting it under Russian government control, with all staff and businesses transferred from the current operator Sakhalin Energy Investment Co.
According to the decree, foreign investors must apply within a month to retain their existing shares in the new entity after it is established.
Gazprom owns a roughly 50 percent stake in Sakhalin 2, while British oil giant Shell PLC has approximately 27.5 percent, followed by Mitsui and Mitsubishi.
Shortly after Russia's invasion, Shell said on Feb. 28 that it would exit the project.
Sakhalin 2, which began LNG exports in 2009, has an annual output capacity of about 10 million tons of LNG, with Japan, China and South Korea among the major importers. Of the total, Japan imports around 6 million tons.
U.S. oil major Exxon Mobil Corp. has also announced its withdrawal from Sakhalin 1, which has been supplying Japan with crude oil since 2006, in the wake of the Ukraine crisis.