Export of Russian LNG to Asia-Pacific: Geopolitical Risks and it’s Impact on Regional Energy Security

Nepal Institute for International Cooperation and Engagement (NIICE) 
NIICE – 25 August 2020, NIICE Commentary 5861
Nikolay N. Goryachev

The Asia-Pacific region is developing rapidly; therefore, the demand for energy resources in this region is constantly growing. It makes this region an important area of Russian Liquefied Natural Gas (LNG) export policy. The main exporters of Russian LNG are the Asia-Pacific countries, namely: China, South Korea and Japan. But export of LNG is less in volume that exports of natural gas.

In the past few years, the main geopolitical instrument for influencing Russia’s energy projects, still, is the “diplomacy of sanctions”. Two of the three promising gas pipelines – Nord Stream 2 and Turkish Stream – are experiencing problems in this regard. These projects are subject to ongoing unilateral US economic sanctions. A well-known US policy towards Russia’s and its partners brings us back to the question of the possibility of similar geopolitical problems for Asian countries. Japan and South Korea, two of the three main importers of Russian LNG, are in a military-political alliance with the United States. And this can be a main problem.

Due to Japan’s dependence on energy imports, it uses a purely economic approach to solving energy problems. No matter how the political and geopolitical situation in the world develops, pragmatic countries primarily look at the economic component. At the end of 2018, Russia’s Novatek signed a MOU with Japan’s Saibu Gas to use the Hibiki LNG terminal – which could reload cargoes shipped from the Yamal plant via the Northern Sea Route. Should expansion plans at the terminal go ahead, it could be used as an transit point for LNG exports by Novatek via the Arctic Ocean to Asia, especially China and Southeast Asia. In June 2019 the first LNG carrier arrived to Tobata terminal, located at south of Japan.

In September 2019, Novatek Company and Mitsui O.S.K. Lines, Ltd. (MOL) and Bank of Japan for International Cooperation (JBIC) signed a Cooperation Agreement. In accordance with the signed Agreement, the parties intend to organize joint implementation of projects for the construction of LNG transshipment complexes in Kamchatka and the Murmansk Region of Russia, including the acquisition of shares and the financing of these projects. Gas from Sakhalin-2 has long been supplied to Japan, where the Japanese companies Mitsui and Mitsubishi are co-shareholders. Japan is so interested in Russian LNG projects that for this investor and buyer a real struggle began among Russian gas producers. During 2019 Eastern Economic Forum, Vladimir Putin and Shinzo Abe in the course of their brief meet also focused on, liquefied natural gas as main topic for the negotiations.

There is an opinion among Russian scientists that the US energy policy towards Japan in any case will be implemented very successfully. This concept is based on two factors. First, Japan is the largest LNG consumer in the world. Second, the existence of allied relations between Japan and the United States in itself will stimulate the development of imports of American LNG to Japan. However, in 2018, the main suppliers of LNG to Japan were Australia, Malaysia, Qatar, Russia and Indonesia. The USA is not able to increase its share in the Japanese gas market. Usually the American gas trading model seeks to reach a greatest benefit for USA. Therefore, gas primarily goes to those markets where the contract price is higher. However, in the case of the supply of American gas to Europe, this has already become a political matter. Therefore, supplies to Europe already have more geopolitical than financial significance. At the same time, Novatek’s activity could provoke the United States to impose sanctions on Russian gas supplies to Asian markets. The fact that Novatek’s projects in Yamal Peninsula were built ahead of schedule, play an important role in this context. Novatek had launched the second phase of the Yamal LNG plant – six months earlier the third phase – a year earlier. Initially, the construction was synchronized with the construction of tankers. But the facilities on the Yamal Peninsula were built earlier and gas carriers were not. Cooperation with Japan in the construction of a transshipment terminal in Kamchatka will allow Russia to reduce transport costs. This can significantly increase competition between the US and Russia in the Asian LNG market. The main geopolitical question boils down to whether the Japanese leaders have enough political will to prevent external political dictatorship of the USA in their own gas market?

The Republic of Korea is also limited in the issue of purchases of Russian gas. The main problem in the case of Korea is the presence of uncertainty about the situation around the Korean Peninsula. The political leadership of South Korea in recent years has shown more independence in relations with its northern neighbor. However, the current level of relations between the ROK and the DPRK does not allow talking about the implementation of projects for the supply of Russian energy to South Korea through pipelines. In matters of energy cooperation with Russia, South Korea, therefore, depends not so much on the position of the United States as on the position of the UN. As long as there are UN Security Council sanctions against the DPRK, the development of infrastructure projects and pipelines are impossible. On the other hand, at present, the export potential of Russian LNG supplies to the Korean market is limited only by a lack of transporting.

The only major player in Asia that has virtually no geopolitical risks in the development of energy cooperation with Russia is China. The launch of the Power of Siberia gas pipeline in December 2019 allowed both Russia and China to strengthen their energy security. Chinese considerations as a demand market include diversification of supply contributing to greater energy security while at the same time creating a degree of economic interdependence with Russia. The Power of Siberia helps to meet growing demand in the Chinese market and is a step towards the internationalization of the RMB in global oil and gas trade. These factors are certainly not in conflict with Russian goals of diversifying its gas markets away from Europe and positioning itself as an important economic and political actor in Asia. Even the Chinese goal of internationalizing the RMB is supported by Russia as a step towards breaking the monopoly of oil trade in USDs. For the Russian side, Power of Siberia is, of course, an expensive project with minimal profitability. But for China, the benefits are obvious. With the launch of the Power of Siberia, China received a stable source of gas supplies, almost independent of the international situation. LNG suppliers to China are completely dependent on shipping. Obviously, in case of third-party geopolitical pressure on suppliers (Qatar, Australia, etc.) or other difficulties, the Power of Siberia remains the only source of gas supplies.

Nikolay N. Goryachev is a Research fellow at the Center of Asia-Pacific Studies, Institute of History, Archeology and Ethnography of the Peoples of the Far East, Russia, and a friend of the Pacific.


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