Japan tells Mitsui, Mitsubishi to hang on to Sakhalin-2 stakes
Putin move on key LNG project threatens G-7 unity on Ukraine sanctions
TOKYO -- The Japanese government has urged trading houses Mitsui & Co. and Mitsubishi Corp. to maintain their stakes in Russia's Sakhalin-2 liquefied natural gas project under its new operator.
"The companies already have the stakes, so we agreed that they should hold tight to them," Economy, Trade and Industry Minister Koichi Hagiuda told reporters after meeting with Prime Minister Fumio Kishida on Friday.
Russian state-owned gas company Gazprom owns around 50% of Sakhalin Energy, the current operator of the Sakhalin-2 project. Shell owns about 27.5%, Mitsui 12.5% and Mitsubishi 10%.
Russian President Vladimir Putin on June 30 signed an order to transfer all assets and rights associated with the project to a limited liability company. Foreign shareholders will buy into the new company -- but only if they agree to terms set by the Russian authorities.
What these terms entail remains unclear, and the Japanese companies will make final decisions once they are known.
Russia could also still refuse requests to invest in the new operator, meaning that their current stakes in Sakhalin-2 will essentially be requisitioned for sale to Russian companies.
Despite the potential risks, the Japanese government wants Mitsui and Mitsubishi to maintain stakes in Sakhalin-2 for the sake of the country's energy supply. The project produces 10 million tons of LNG per year. Six million tons are shipped to Japan, accounting for around 10% of its total imports.
Japan can continue to purchase LNG from the project without companies taking stakes in the new operator, as long as there are valid contracts in place. But the possibility of disruption would increase. The Japanese government has decided there is no need for companies to voluntarily forgo participation in the new Russian operator.
Tokyo believes that Russia will set up the new operating company shortly. Foreign investors will need to notify Moscow within a month whether they want stakes in the entity.
"We will hold discussions with stakeholders, including the Japanese government and our partners, and respond appropriately," Mitsui said Friday.
"We will discuss our future strategy with the government and our partners," Mitsubishi said.
Japan could continue to face headwinds for its energy supply even if the trading houses decide to buy into the new operator. In addition to a potential rejection by Russia, there is no guarantee that the new operator will continue to reliably ship LNG to Japan, especially given Russia's repeated violations of international law in its invasion of Ukraine.
Group of Seven sanctions on Russia further complicate the situation. There is speculation that Russia may be trying to drive a wedge between Japan and the West by forcing Japanese companies to take a new stake in a Russian business.
G-7 members are restricting new investments in Russia. Japan in particular currently bans companies from taking 10% or more ownership in a Russian business. The Japanese government plans to frame any transactions tied to Sakhalin-2's new operator as a measure to maintain existing Japanese interests in the project, rather than a fresh investment.