Russia urges Japan to invest in oil, gas developments

Russia’s Deputy Premier Igor Sechin, taking direct aim at Middle Eastern oil producers, has urged Japan to increase its imports of Russian oil in addition to cooperating with his country on the development of its natural resources.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, May 19 -- Russia’s Deputy Premier Igor Sechin, taking direct aim at Middle Eastern oil producers, has urged Japan to increase its imports of Russian oil in addition to cooperating with his country on the development of its natural resources.

“Oil produced in eastern Siberia is the best option for Japanese refineries,” Sechin said, referring to long-standing wishes of the Russian government for Japan to help develop the region’s resources in connection with the recently launched East Siberia-Pacific Ocean (ESPO) oil pipeline.

Russia began exporting crude from eastern Siberia last December after launching Phase 1 of the ESPO pipeline, which also uses rail delivery to connect oil fields in eastern Siberia with Kozmino on its Pacific coast near Nakhodka.

Sechin told reporters that the quality of eastern Siberian oil is “higher” than that of the oil Japan imports from the Middle East, and that it is better suited for refining. About 20% of crude exported from eastern Siberia in 2010 as of May 11 went to Japan, he said.

The ‘Russia risk’
However, Sechin’s suggestion conflicted with Japanese analysts who have called for more care in dealing with Russia.

Japan’s Yomiuri Shimbun newspaper said major Japanese trading houses and energy-related firms have been advancing plans to move into Siberia with a view to clinching deals on crude oil and LNG from Russia's Far East.

The Japanese firms have been paying close attention to Siberia and the Russian Far East because completion of Russia's two pipeline projects will mean Vladivostok and its vicinity could become a “mammoth base” for exporting crude oil and LNG from Russia.

The two pipeline projects are the Far Eastern-Pacific LNG pipeline project and the ESPO line.

The paper noted that any contracts concluded with Russia regarding the projects are “likely to provide Japanese companies with major business opportunities for importing oil and LNG into Japan and also exporting the products to other countries in Asia.”

Successful signing of the envisioned deals would also help reduce Japan's heavy dependence on the Middle East for crude oil and contribute much to the nation's energy security, analysts acknowledged.

However, the paper reported that “expansion of business operations to Russia, however, is always accompanied by financial risks.”

It said the risks involving Russia became apparent in 2006 when Japanese trading houses were pressured by the Russian government to sell to OAO Gazprom their majority stake in Sakhalin Energy Investment Co., the Russian government-affiliated operator of the Sakhalin-2 project.

As a result, one trading house official said that, “uncertainty remains” over doing business in Russia.

Analysts cited by the newspaper said the Japanese government “must remain aware that the planned oil and LNG deals with Russia will significantly affect Japan's overall energy policy.”

However, the analysts also said that Tokyo should minimize the “Russia risk” when Japanese companies sign large-scale business contracts with Moscow by such means as participating in the deal.

Contact Eric Watkins at hippalus@yahoo.com.

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