AlwaysFree: Japan Seeks To Stay In Russia's Sakhalin-1 Energy Project After Exxon Exit

• Remaining investors forced to decide whether to accept Moscow's new terms

According to Nikkei Asia’s article published on October 31, 2022, the Japanese government has decided to remain involved in the formerly Exxon-led Sakhalin-1 oil and gas project in Russia, Nikkei has learned, as it seeks a stable supply of energy despite international sanctions on Moscow over its invasion of Ukraine.

ExxonMobil, which held a 30% stake in Sakhalin-1, announced in March that it would withdraw from the project.

Russia has set up a new company to take over the project under a presidential decree that has in effect forced investors to choose sides.

Japan's Ministry of Economy, Trade and Industry is a stakeholder in Tokyo-based Sakhalin Oil and Gas Development -- which owns 30% of Sakhalin-1's current operator -- along with other investors including Itochu, Japan Petroleum Exploration and Marubeni.

The Japanese consortium will make a final decision on whether to stay invested in the project after discussions with other stakeholders.

The Group of Seven nations decided in May to ban imports of Russian crude oil. Although the G-7 did not decide on a time frame, saying only that the ban will be enforced in a "timely and orderly fashion," Japan's continued participation in Sakhalin-1 would go against the consensus among fellow G-7 members.

As Japan relies on the Middle East for 95% of its crude imports, it sees ownership in Russian projects as essential to ensuring a stable supply of energy.

Russian President Vladimir Putin on Oct. 7 signed a decree transferring Sakhalin-1 to a newly established company, which was registered on Oct. 14. Stakeholders in the project were given one month to decide whether to invest in the new company, and relevant Japanese agencies, including the Ministry of Economy, Trade and Industry, have been considering their options.

A unit of Russian state oil company Rosneft is expected to operate Sakhalin-1 after ExxonMobil. Rosneft and India's state-owned Oil and Natural Gas Corp. each previously held 20% of the project.

Operations at Sakhalin-1 have been virtually shut down. Japan has imported no oil originating from the project recently, so losing its stake will not have an immediate impact on the country's fuel supply.

Russia has transferred operations of the Sakhalin-2 natural gas project to a new company as well. Japanese investors Mitsui & Co. and Mitsubishi Corp. decided to retain their stakes in the project, and their continued investment has been approved by the Russian government.

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