Photo/Illutration A ship transporting liquified natural gas from the Sakhalin-2 project is seen in Sakhalin Oblast in the Far East region of Russia in 2009. (Pool)

Some Japanese electricity and gas companies are ready to soon sign fresh contracts with the new Russian operator of the Sakhalin-2 gas and oil extraction project.

According to information multiple sources provided on Aug. 18, the new contracts offer the companies the same conditions as the previous ones regarding energy prices and supply amounts.

An official at one Japanese utility said it intends to remain with the project under its new ownership.

“We will communicate our intention to sign the contract (to the new operator of Sakhalin-2), as the deadline is near,” the official said.

Some had worried the new operator might offer conditions that would be disadvantageous to Japan, but that appears to not be the case. Still, others feel uneasy about the sudden change in ownership and the new contract offers have not erased concerns Russia could at some point restrict supply.

But if many other Japanese utilities follow suit, then Japan can expect to secure a certain amount of liquefied natural gas (LNG) ahead of winter. That supply is key to Japan’s energy security, as experts have warned about a potential shortage of electricity and gas once the country turns the heat on in the colder months.

The Russian state-owned energy company Gazprom, the British oil giant Shell and Japan’s Mitsui & Co. and Mitsubishi Corp. all had stakes in the company formerly operating the Sakhalin-2 project, which is located in Russia’s Far East. But Russian President Vladimir Putin signed a presidential order at the end of June instructing the transfer of the project to a new company, established on Aug. 5.

Japanese trading houses Mitsui and Mitsubishi have also been asked by the new Sakhalin-2 operator to decide by Sept. 4 whether they will continue to have stakes in the project.

Although the government has asked Mitsui and Mitsubishi to “actively consider” participating in the new company, they have yet to make their intentions clear.

According to sources, the new operator of the project set the end of August as the deadline for Japanese utilities to sign fresh contracts.

Some in these Japanese utilities are taking a wait-and-see approach about striking a new contract before Mitsui and Mitsubishi decide whether to continue their participation in the project.

“We feel uneasy about signing a contract with a company that has only Gazprom as its stakeholder,” one of them said.

Japan relies on Russia for around 10 percent of the LNG imported to the country and most of it comes from Sakhalin-2.

If Russia ever cuts off the energy supply to Japan, then electricity and gas prices could rise further, as Japanese utilities would have to purchase LNG at inflated prices through short-term markets.

More companies signing on with the new operator could assuage concerns about the energy supply to Japan, at least for the time being.

In July, Russia suddenly slashed the volume of gas it sends to Germany through the Nord Stream 1 pipeline, arguing that it had to check and maintain the infrastructure. But critics have accused Russia of punishing Europe over opposition to its invasion of Ukraine.

Some fear Russia could do something similar to Japan to throw the country off balance.

“Even if we are supplied with energy (by Sakhalin-2) for the time being, once winter comes, Russia could say, 'We will cut the supply.' We can’t rest easy yet,” one insider said.

(This article was written by Junichi Miyagawa and Shiki Iwasawa.)

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