US sanctions hamper Moscow and Tokyo

US sanctions hamper Moscow and Tokyo

President of Russia, speaking at the plenary session of the Eastern Economic Forum in Vladivostok, proposed to conclude a peace treaty with Japan by the end of the year without any preconditions. ”We have been negotiating for 70 years. Shinzo (Japanese Prime Minister Shinzo Abe) said: "Let's change the approaches." Let's do it, I came up with an idea - let’s conclude a peace treaty, not now, but by the end of the year without any preconditions, " Vladimir Putin said. So far there has been no response from Abe, but this does not prevent Moscow and Tokyo from successfully cooperating in the energy sector.

As S&P Global Platts writes in the article Russia, Japan committed to building closer energy ties despite geopolitical risks, Russian and Japanese companies signed several energy cooperation deals during the Eastern Economic Forum in Vladivostok this week, committing to building closer ties despite geopolitical risks that include US sanctions against Russia and an ongoing territorial dispute.

LNG is a key priority for Russian and Japanese energy companies, as Russia seeks markets for its expanding production and Japan looks to secure supply. Japanese Prime Minister Shinzo Abe and Russian President Vladimir Putin, during a plenary session at the forum on Wednesday, said their goal was to develop strong and fruitful bilateral cooperation and tackle those risks.  Abe said: "There is unlimited potential for Japan's relationship with Russia, as we lay the foundation for a peace treaty."

State-run Jogmec CEO Tetsuhiro Hosono said the company was prepared to be patient when negotiating energy deals with Russia, taking into consideration complications such as US sanctions against Russia. "It is true that there are some issues in the course of promoting Russian-Japanese energy cooperation, such as sanctions introduced by a third country. But what Jogmec and a lot of Japanese companies realize is that if we are patient and establish a reliable partnership we can develop stable, mutually beneficial business with Russia," Hosono said.

Earlier, Jogmec signed a Memorandum of Understanding on LNG cooperation with Novatek, and the company saw significant potential for LNG projects in the Russian Arctic, Hosono said.

The LNG sector is a key focus area for future cooperation between the two countries, Putin said earlier, noting that Japanese companies may also take part in the planned expansion of Arctic LNG 2, Sakhalin 2 and Baltic LNG projects, as well as an LNG transshipment facility in Kamchatka.

Hosono said Jogmec, which has been negotiating the projects on behalf of Japanese companies, has focused on upstream projects rather than the transshipment terminal that Novatek is developing to ensure stable and competitive supplies of LNG to Asia from the Yamal peninsula.

On Wednesday, Gazprom and Mitsui signed an MoU on the planned Baltic LNG project, and also discussed the pace of work on the Sakhalin 2 project, where the two partners already cooperate. Sakhalin 2 is considering expansion through building a third train, with a capacity of 5 million mt/year.

Cooperation between Gazprom and Japanese companies is picking up, primarily in the LNG sphere as Japan is traditionally a major purchaser of Gazprom's LNG, accounting for 36% of its total sales of LNG, Gazprom CEO Alexei Miller said.

There were signs, however, that trade tensions are complicating further cooperation agreements. Marubeni chairman Teruo Asada said US sanctions were making it harder for Japanese companies to attract financing for major projects in Russia. "It is quite difficult for us to get competitive and attractive financing due to the US sanctions. Japanese commercial banking institutions will not be able to provide such financing for large infrastructure projects," Asada, who also chairs the Japan-Russia Business Cooperation Committee, said on the sidelines of the forum. "This is a major headache preventing us from proceeding with new projects in Russia," he said.

Despite those concerns, Marubeni Tuesday signed a deal with the Russian Direct Investment Fund and Japan's AEON Infrastructure Corporation on the key terms of construction of a methanol production unit and chemical plant in Volgograd. The $800 million plant, with an estimated capacity of over 1 million mt/year of methanol, is slated to be built by 2023.