Mitsubishi set to join new Sakhalin-2 Russian operator
Trading house, along with Mitsui, responds to Tokyo's call to ensure LNG supply
TOKYO -- Mitsubishi Corporation is set to issue a notice that it will participate in the new operating company for Sakhalin-2, a resource development project in the Russian Far East, Nikkei has learned.
In August, Russia transferred operation of the project to a new company, forcing Japanese participants Mitsui & Co. and Mitsubishi to decide whether they would continue their investment. Mitsui has also decided it will announce its continued participation in Sakhalin-2. Both companies are expected to announce their plans by the end of the month while closely watching developments in Russia.
The Japanese government, whose policy is to maintain its concession in Sakhalin-2, had requested the cooperation of Mitsui and Mitsubishi. The government believes it will be easier to stably procure liquefied natural gas (LNG) from Sakhalin-2 if both companies join the new operating company; the trading houses fell in line.
After receiving notice from the Japanese companies, Russia's government is expected to decide within three days whether to allow their participation in the new operating company. The two trading houses would need to renegotiate their shareholders' agreement with the new operating company. How Russia might respond is unpredictable.
It is currently believed that no disadvantageous changes have been made by Russia, but Moscow could take unilateral measures that would jeopardize the continued business of the Japanese companies in the future. As risks increase, the companies could end up requiring the full support of the Japanese government.
Moscow established a new company to operate Sakhalin-2 in Russia on Aug. 5, taking over the rights, obligations and employees from the former managing company. Russia's state-owned gas company Gazprom owned more than 50% of the former company, while the U.K.'s Shell held just under 27.5%, Mitsui 12.5% and Mitsubishi 10%.
Gazprom will hold just over 50% of the new company. Moscow had asked the other three companies to notify it by Sept. 4 -- within one month of the creation of the new business -- whether they would agree to acquire shares according to their existing ownership ratios.
Sakhalin-2 will produce 10 million tons of LNG per year, 6 million of which will be exported to Japan. That comprises just under 10% of Japan's LNG imports. Hiroshima Gas depends on Sakhalin-2 for about 50% of its LNG procurement, Kyushu Electric Power and Toho Gas about 20% each, and Tohoku Electric Power, Tokyo Gas and Saibu Gas Holdings about 10% each.