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2 Japan covets Russian gas, hot
air By Hisane Masaki
TOKYO - Japan, in a desperate bid to fill
its energy and environmental needs, is coveting
resource-rich and energy-inefficient Russia’s
plentiful natural gas and surplus greenhouse gas
(GHG) emission credits.
Japan’s imports of
liquefied natural gas (LNG) from the Sakhalin-II
project off Russia’s Pacific coast are expected to
start early next year. Japan also hopes to import
the fuel from the adjacent Sakhalin-I project.
Meanwhile, Tokyo and Moscow agreed at the
weekend to kick off talks on ways to fight climate
change, including Japan’s possible purchases of
Russia’s surplus GHG emission credits - or rights to
emit
carbon dioxide (CO2) and other heat-trapping GHGs
- to reach its GHG emission reduction goal under
the Kyoto Protocol on curbing global warming.
Russia has the world’s largest reserves of natural
gas. It is also said to have the largest amount of
surplus GHG emission credits.
Resource-poor Japan’s drive for natural
gas, as well as oil, has shifted to high gear, as
the world’s second-largest economy is increasingly
concerned about its medium- and long-term energy
security amid spikes in prices and intensifying
global competition, fueled by China’s increasing
needs, for hydrocarbon resources.
For
Japan, which imports almost all of its oil and
natural gas, ensuring stable supplies is a matter
of life or death. Japan remains by far the world’s
largest importer of LNG, buying about 40% of
global imports.
Meanwhile, the country
boasts the world's most energy-efficient economy
and is proud of the fact that the Kyoto Protocol
was negotiated and born in the nation's ancient
capital in 1997. Even so, Japan is increasingly
feeling the heat over the Kyoto Protocol as the
major emitter of CO2 is struggling to reach its
CO2 and other greenhouse gas reduction goals under
the treaty.
Failure to fulfill its
commitment under the treaty would not only
represent a loss of face for the nation but deal a
blow to its clout in the world of environmental
diplomacy.
The issue is particularly
sensitive for Japan, which wants to take the
leadership role in efforts to establish a new and
effective international framework, now under
negotiation, to replace the Kyoto Protocol, which
expires in 2012.
Prime Minister Yasuo
Fukuda unveiled his climate initiative, dubbed
"Cool Earth Promotion Program", in a speech at the
World Economic Forum in Davos, Switzerland last
month. The Japanese initiative includes, among
other things, a pledge by Tokyo to provide US$10
billion in aid over five years to developing
countries to help them combat global warming.
The first - and probably most important -
test of Japan’s diplomatic finesse will come in
early July when it hosts this year’s summit of the
Group of Eight (G8) major nations. Climate change
is expected to top the agenda at the G8 summit,
which will bring together leaders from the United
States, Canada, Britain, Germany, France, Italy,
Russia and Japan. Japan also plans to invite to
the summit leaders from such leading developing
countries and CO2 emitters as China and India.
Natural gas for energy In 2006,
Japan purchased 62.2 million tons of LNG from
abroad, up 7.2%, or 4.2 million tons, from 2005,
to supply 96.4% of its LNG needs. Indonesia was
the largest supplier to Japan in 2006, exporting
13.99 million tons, followed by Australia,
Malaysia, Qatar, Brunei and the United Arab
Emirates, which shipped 12.16 million tons, 12.02
million tons, 7.48 million tons, 6.50 million
tons, and 5.31 million tons.
But Japan is
increasingly alarmed by the global rush, as well
as soaring prices, for natural gas - an
environmentally friendlier fuel than oil. Global
imports of LNG jumped 10.8% to 158.8 million tons
in 2006.
The rush for natural gas is led
by China and India. China, the world’s
fastest-growing major economy, started LNG imports
in 2006, purchasing the fuel from Australia. The
level of imports, which will begin or increase
from Indonesia, Iran and other countries as well
as Australia, are expected to total between 45
million tons and 60 million tons in 2020, making
it one of the world’s largest LNG importers. India
is also sharply boosting LNG imports to feed its
high-flying economy, importing 6.2 million tons of
LNG in 2006, up 37.2% from 2005.
The
Japanese government is exploring every avenue to
ensure the nation’s energy security in the medium-
and long-terms. In line with the "New National
Energy Strategy" adopted by the Ministry of
Economy, Trade and Industry in May 2006, Tokyo is
intent on strengthening relations with oil- and
gas-rich countries through such means as increased
official development assistance and conclusion of
free-trade agreements with energy clauses
incorporating trading partners’ commitments to
stable supplies.
The New National Energy
Strategy also calls for "drastically strengthening
the supply of risk money" related to the
exploration and development of overseas oil and
natural-gas reserves by domestic development
companies. Until only a few years ago, the
Japanese government had shied away from getting
deeply involved in risky exploration projects
abroad in the wake of a much-criticized blunder
over now-defunct Japan National Oil Corp (JNOC).
The government's recent strong backing for
domestic energy companies engaged in foreign
exploration and production of oil and gas marks a
clear policy reversal.
In the current
fiscal year, which ends in April, the government
began to pump public funds into private-sector
efforts to secure oil, gas and other interests
abroad. The funds are being channeled primarily
through three government-affiliated organizations
- JNOC’s successor Japan Oil, Gas and Metals
National Corp, Nippon Export and Investment
Insurance and Japan Bank for International
Cooperation (JBIC).
JBIC has also been
strengthening relations in recent months with the
governments and organizations of resource-rich
countries, including the Joint-Stock Bank of the
Gas Industry, or Gazprombank as the subsidiary of
state-owned Russian gas monopoly OAO Gazprom is
commonly known. Last July, JBIC signed a loan
agreement worth 10 billion yen (US$93 million)
with Gazprombank as part of efforts to strengthen
ties with Russia.
To secure stable
supplies in the long-term, Japanese energy
companies have also been stepping up investments
in promising LNG projects abroad.
Indonesia LNG cuts In 2006,
Indonesia supplied nearly 14 million tons of LNG
to Japan, or about 22.5% of Japan’s total imports.
Most of Indonesia's long-term LNG supply contracts
with East Asian countries, including Japan, start
expiring from 2010. Indonesia has threatened to
make a draconian cut in its Japan-bound LNG
exports to boost the availability of fuel for
domestic industries amid decreasing natural gas,
as well as oil, production at home.
Indonesia has said that although it will
extend its LNG export contract with Japan after
the current one expires in 2010-2011, the export
volume will be drastically cut. "Indonesia will
surely extend the contract on its LNG exports to
Japan for 10 years," Iin Arifin, vice president of
state-owned oil and gas company PT Pertamina, was
quoted as saying last October by Asia Pulse. He
said Indonesia will export a total of 25 million
tons of LNG for 10 years under the extended
contract.
He said the LNG exports would be
carried out in two stages, with three million tons
annually in the first five years and two million
tons per annum in the second five-year period. "We
are still negotiating the price of the LNG
exports," he was quoted as saying.
Japanese energy companies and Indonesia
are now said to be nearing the final stage of
negotiations on new contracts. However, the
planned cut in Indonesian LNG exports is expected
to have only a limited impact on Japan, at least
in terms of securing volume, as Japanese electric
power and gas companies have been increasing
imports from other suppliers, especially Australia
and Qatar, in recent years in anticipation of the
Indonesian move.
Japan’s reliance on
Indonesia for LNG imports declined to about 22.5%
in 2006 from nearly 40% a decade ago and will
certainly drop further. But if a country that is
geographically proximal to
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