IEEJ: May 2013 All Right Reserved
Special Bulletin
A Japanese Perspective on the International Energy Landscape (127)

April 22, 2013

Russia Enhancing Efforts to Develop LNG for Asian MarketKen Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
In a new development involving Russia's energy strategy for Japan and other
Asian markets, Rosneft, the largest Russian state-run oil company, announced on April
18 that it signed a strategic partnership agreement with Japanese trading house
Marubeni Corp. on a Far Eastern liquefied natural gas project and their joint oil andgas exploration and development. The strategic partnership is designed for Rosneft andMarubeni to enhance efforts to realize the Far Eastern LNG project for Japan and otherAsian markets while anticipating their joint exploration and development ofRosneft-owned oil and gas concession blocks.
As described in my earlier report, "New Moves Seen for LNG Development inRussian Far East: A Japanese Perspective on the International Energy Market (121)
February 22, 2013," Rosneft has been developing and enhancing its Asian market
strategy rapidly. Under its 2011 Strategic Cooperation Agreement with international oilmajor ExxonMobil, Rosneft has indicated its intention to promote bilateral cooperation
in a Far Eastern LNG project as well as a Russian Arctic continental shelf oil and gas
development plan and ExxonMobil's Point Thomson gas development project in North
Slope, Alaska. Based on these intentions, Rosneft CEO Igor Sechin visited China, South
Korea and Japan to meet with government officials and energy industry executives in
the respective countries. This time, Rosneft made a step forward to promote its
cooperation with a Japanese partner in Far Eastern LNG development.
The Rosneft-ExxonMobil Alaskan gas development project is likely to target
Asian markets ultimately. In this sense, Rosneft may have multiple options to develop
LNG for Asian markets. Furthermore, strategic options for Rosneft may include
pipeline gas supply. Both the Russian and Asian (Japanese) sides have various
potentials, speculations and strategic plans concerning how to develop natural gas
resources under the Sakhalin 1 project and explore channels for gas sales for Asianmarkets including Japan. Therefore, Rosneft may have both LNG and pipeline gas
supply to Asian markets in mind.
Meanwhile, Rosneft's aggressive strategy development is coinciding with1IEEJ: May 2013 All Right Reserved
Gazprom's activated approach on Asian markets including Japan. Gazprom has so far
represented the Russian gas industry and monopolized Russian natural gas exports. On
April 16, Gazprom representatives participated in a Japan-Russia joint natural gas
coordination committee meeting in Fukui Prefecture. On April 17, Gazprom CEO Alexei
Miller exchanged views with Japanese Economy, Trade and Industry MinisterToshimitsu Motegi on the Gazprom-led Vladivostok LNG project.
Japan and Russia signed a memorandum of understanding on the Vladivostok
LNG project when an annual summit of the Asia-Pacific Economic Cooperation Forum
took place in Vladivostok in 2012. It has become Russia's new frontrunner project for
LNG exports to Asia including Japan. Russian President Vladimir Putin has placed
great expectations on the project and has promoted it as a key national project in which
Russia's national prestige is at stake. Gazprom representatives' visit to Japan and talks
with Japanese government and industry executives apparently represent its attempt toenhance and promote the project in consideration of the latest Japanese and Asianmarket developments and the abovementioned Rosneft moves.
Basic factors behind these Russian moves may include (1) slumping gas
demand in Europe as a mainstay gas market for Russia and severe market
environments for Russian gas, (2) growing needs to explore and expand channels forsales to expanding Asian markets, (3) the need to leverage energy development foreconomic development in Eastern Siberia and the Russian Far East, and (4) Japan's
growing LNG demand after the Great East Japan Earthquake. In addition, progress inU.S. and Canadian LNG export plans, new LNG development moves in Eastern Africa(Mozambique) and other regions, and other moves that work to intensify competition for
Asian markets have emerged in response to the growing business chances that stemfrom expanding Japanese/Asian demand for LNG and natural gas.
In a sense, Russia has employed Rosneft as a new player to accelerate progressin exploring Asian markets including Japan as Gazprom has taken the initiative indoing so and has been no so much successful to make smooth progress. Russia has
shifted to an aggressive strategy to take advantage of the window of opportunities. It issignificant for Japan and other Asian markets to effectively use gas (energy) fromRussia that is geographically close to Asia and has abundant gas/energy resources. If
Russia develops its aggressive strategy to sell gas to Asia, it may be significant for Asia
including Japan to hold constructive talks with Russia while watching medium- tolong-term market conditions.
But the situation is confused somewhat as Russia is going ahead with its
aggressive market exploration amid new players' emergence and growing presence. Inaddition to Gazprom and Rosneft as mentioned above, Novatek, which is involved in the2

IEEJ: May 2013 All Right ReservedYamal LNG project, is likely to explore Asian markets, complicating the Russiansituation. As various Russian parties are planning to develop resources for exports toJapan (Asia), what specific plan to choose and how to take part in any specific plan are
key issues involving Japan's national interests. Japan may have to make key policy
decisions based on strategic, objective and prudent analyses of the complicated Russian
situation, supply and demand in Asian markets including Japan, and bilateral ties andrelations between major countries such as the United States and China.
When Japanese Prime Minister Shinzo Abe visits Russia in late April,
Japan-Russia energy cooperation is expected to become a key topic in his talks with
Russian leaders. I hope to see constructive discussions on the matter.

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