Bright Prospects of Russia-Japan Economic Cooperation

27.11.2016 Author: Dmitry Bokarev

34123213123It’s a well-known fact that Japan is one of the most import-dependent countries in the world. All of its energy stations are ruining on imported fuel, since natural resources are scarce in the land of the rising sun.

After the Fukushima Daiichi nuclear disaster, Japanese officials decided that they would be pursuing the construction of hydrocarbons driven energy industry. Despite the fact that that Tokyo has found itself unable to turn its back on nuclear energy completely, a large number of nuclear power plants (NPP) was closed. As for stations that went through the process of testing and upgrading successfully, they do not produce enough electricity to fulfill Japan’s needs. Therefore it’s not surprising that Japan is interested in the lowest possible oil, gas and coal, since it has to import all of them. It is also forced to diversify its imports to ensure its energy security. Only 4% of its oil imports and 10% of gas imports are being shipped from Russia. It is an extremely small share if you take into account geographic proximity of the two states and the staggering amount of natural resources that Russia has at its disposal. From the economic point of view, Moscow is the best possible supplier of natural resources for Tokyo, yet the later spends huge amounts of money to get its needs covered by supplies from Australia, the Middle East and other far-away places.

As the world energy market is undergoing a period of instability. the OPEC member-states are discussing the possibility of oil production freezing. Moreover, at the OPEC meeting in Algeria, such major suppliers as Iran and Saudi Arabia have agreed to cut their oil production, which drove prices up. Russia, which is the third largest oil producer in the world, has announced its desire to support this move.If Moscow is to reduce its oil production volumes, prices will keep growing steadily. But, unlike oil producers, Japan is frankly worried about this development, since it has been paying a small fortune already for the “black gold” delivered by tankers.

Ironically, the growing oil prices may result in the considerable improvement of Russian-Japanese relations. Indeed, in the face of rising prices it would be only logical for Tokyo to cut shipment expenses to allow its economy to grow. But this would hardly be possible if you don’t find a seller that lives closer to you. This is one of the reasons why in recent years, the Japanese government began paying special attention to its relations with Russia. Shinzo Abe’s government is even willing to ignore Washington’s dissatisfaction with this fact, since the aggravation of the situation in the Middle East makes Russia a highly desirable trading partner.

In December, Japan will be visited Russia’s President Vladimir Putin, who is expected to be discussing possible prospects of economic cooperation between the two states. It must be noted there’s a long list of potentially profitable projects, the fate of which depends on the forthcoming visit of the Russian president to Tokyo.

For example, the idea of delivering Yamal LNG to Japan along the Northern Sea Route (NSR) has been discussed for a long time. It’s difficult to find a more favorable sea route for Tokyo. However, it is more profitable to deliver gas through pipes. The idea of a Russia-Japan pipeline to be constructed was proposed by the Russian side as early as 2012. However, the Japanese government is reluctant to go along with it.

Until now, all of Japan’s gas imports have been shipped by LNG tankers. The liquefaction of natural gas, consequent marine transportation and then the return of this gas to its original state is extremely costly. It would seem that Japan should be very interested in a cheap gas pipeline, but the project ran into opposition of major Japanese energy companies, which perceive cheap gas as a threat to their business.

But the situation has changed, after the closure of the majority of its nuclear power plants, in the face of energy prices, Japan has never interested more in the pipeline project. It’s reported that a 40 kilometers long pipeline about will stretch from the Russian Sakhalin to the Japanese island of Hokkaido. As is known, the Sakhalin shelf is rich in oil and gas fields, that were discovered in the 1980s by a joint Russian-Japanese expeditions. Even then, there was an opinion to establish a profitable gas trade from Sakhalin to Japan due to the territorial proximity of the gas and oil fields and the final consumer. In March 2016, Russia’s Gazprombank management held a meeting with representatives of the Liberal Democratic Party of Japan. It was reported that the parties displayed mutual interest in this project, but the final decision has been dragged on.

There’s yet another promising project, to export fuel electricity directly from Russia, instead of exporting fuel. Once power lines between Sakhalin and Hokkaido are established, cheap electricity can be supplied directly to Japan. Interestingly, the power bridge can become a part of a much larger project – «Asian Super Grid». There can be a huge energy ring established that will connect Russia, Japan, South Korea and China. All the possible players in this project have already showed their interest in the largest energy infrastructure project to date. In September 2016, Russia’s President Putin has already expressed his support for the project. But the implementation of the energy ring project is unthinkable without an utter and complete trust between member states, which will have joint responsibility for the overall energy security. All they have to provide each other with the guarantees that the electricity supply will not be cut off suddenly due to some controversy.

Like Japan, Russia is also interested in the development of bilateral relations. Aside from the fact that Japan can be a very promising hydrocarbon importer, cooperation with Tokyo is important for Moscow to establish its position in the entire Asia-Pacific region. In recent years, Russia has been trying to diversify its hydrocarbon exports to the East. The promising clients are and have been China, South Korea and Japan. So far, the most successful Russian deals have been signed with China. However, as long as China remains the main partner of Russia, it can dictate the price of hydrocarbons imports. If Russia is to establish business relationships with other major importers, especially with such a long-standing and powerful rival of China as Japan, China will be forced to cherish its relationships with the Russian Federation way more.

Dmitry Bokarev, political observer, exclusively for the online magazine “New Eastern Outlook