Russia Sanctions Failing to Stanch Energy Deals With Japan

Photographer: Oliver Bunic/Bloomberg

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Photographer: Oliver Bunic/Bloomberg

Russian state-run exporter OAO Gazprom branded end caps sit on sections of pipeline at the halted construction site for the South Stream gas project in Sajkas, Serbia.

Japan, dependent on imports for almost all its fuel, is pursuing natural gas projects and energy purchases in Russia despite new sanctions last week designed to punish Vladimir Putin and his associates.

Japan won’t be keen on deeper sanctions that would curb its access to gas, oil and coal from Russia, said Will Pearson, a London-based director of Eurasia Group, an energy and natural resources consultant. “Japanese firms are very interested in accessing Russian natural resources, thanks to their proximity,” he said.

Japan buys about 65 percent of the liquefied natural gas coming from Russia’s Sakhalin-2, a 9.6 million metric ton-a-year project, according to Leigh Bolton, managing director of Holmwood Consulting Ltd., a Surrey, England-based energy consultant. Neither country will break the contracts based on sanctions, he said.

Japan will freeze assets of individuals or groups involved in increasing instability in Ukraine and in the annexation of Crimea, Chief Cabinet Secretary Yoshihide Suga said July 28. Russia’s foreign ministry said July 29 that Japan’s new sanctions are “unfriendly, shortsighted” and will hurt bilateral relations.

Japan continues to view Russia as an important, resource-rich country, a Tokyo-based official at the Ministry of Economy, Trade and Industry said, asking not to be identified due to internal policy.

Russia’s Sakhalin facility near Japan’s northern island of Hokkaido provides almost 9.5 percent of Japan’s gas, according to Royal Dutch Shell Plc (RDSA), which owns a quarter of the project.

Russian President Putin’s continued support for separatists in eastern Ukraine has prompted the U.S. and European Union to impose restrictions on the operations of some banks and energy companies in an effort to isolate the Russian economy.

Putin spokesman Dmitry Peskov declined to comment on the Russian president’s scheduled visit to Japan and the countries’ energy ties. Russia cited Japan’s sanctions for canceling talks between the nations’ deputy foreign ministers, Putin’s foreign ministry said on its website.

To contact the reporters on this story: Chou Hui Hong in Singapore at chong43@bloomberg.net; Anna Shiryaevskaya in London at ashiryaevska@bloomberg.net; Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net

To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net Mike Anderson

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