Japan to Invest in the Latest Russian LNG Project

Energy Fact & Opinion


  • Following the meeting between Japanese prime minister Shinzo Abe and Russian president Vladimir Putin, on the margin of the Group of Twenty (G20) summit in Osaka, Japan on June 28-29, Russian and Japanese companies signed a basic agreement on Russia’s liquefied natural gas (LNG) project.
  • Mitsui & Co. and Japan Oil, Gas and Metals National Corporation (JOGMEC) agreed to invest $3 billion in the Arctic 2 LNG Project by Novatek of Russia for a 10 percent stake and 2 million metric tons per year (mtpa) of LNG supply.
  • The two Japanese companies join Total of France, China National Petroleum Corporation (CNPC), and China National Offshore Oil Corporation (CNOOC), each of the three having a 10 percent stake.
  • Novatek’s $20 billion LNG project is expected to come online in 2022-2023 with a capacity of 19.8 mtpa if Novatek reaches the final investment decision, which is expected by the end of this year.


The Japanese announcement to invest in Novatek’s Arctic 2 LNG project following the 26th meeting between Japanese and Russian leaders reflects multiple interests of the two countries in the energy, foreign policy, and geopolitical spheres.

Energy Security—Russian Gas Helps to Diversify Japan’s LNG Import Mix

The reliable supply of competitively priced natural gas is a central concern for Japan’s energy security since the nation has become more dependent on natural gas for electricity supply following the Fukushima nuclear accident in 2011. In order to strengthen its access to global supplies of LNG, Japan has accelerated the effort to diversify its import sources away from its traditional suppliers. For example, Indonesia, Malaysia, and Brunei accounted for nearly half of Japanese imports pre-Fukushima. Since 2011, however, Australia, Qatar, and Russia have risen in importance. Likewise, Japan’s appetite for Russian LNG can strengthen Russia’s energy security as an LNG supplier even if China is fast catching up to Japan as a leading global LNG importer. Japanese demand is not to be overlooked if Russia is to fulfill its desire to secure a 20 percent share in the global LNG market through a fivefold expansion of its liquefaction capacity by 2035. Meanwhile, with nine nuclear power reactors back online today, the Japanese demand for LNG has tapered off. While Russian LNG advances Japan’s supply diversification objective, what the Arctic 2 LNG project would mean to Japan’s pursuit of economically competitive LNG supply remains to be seen.

Foreign Policy—Japan is Bidding on the Centrality of Energy Exports to the Russian Economy to Regain the Northern Territories

Russia has been supplying natural gas to Japan from its Sakhalin 2 project since 2009, but Japan has also considered additional projects with Russia, including the Sakhalin 1 gas production project and the Vladivostok LNG project. Japanese interest in forging closer energy ties, particularly those around oil and gas trade and investment, reflects Tokyo’s objective to resolve what it considers to be an outstanding territorial issue over what the Japanese call the Northern Territories and the Russians call the Southern Kurils. Japan, under the leadership of Prime Minister Shinzo Abe, is particularly keen on expanding energy economic cooperation with Russia to make it more politically palatable for the Russian leadership to come to the table.

Energy was among the eight areas for expanded economic cooperation agreed upon by the two leaders at the May 2016 summit. Following the agreement, Japan, through the Japan Bank of International Cooperation (JBIC), provided loans to Russia’s Yamal LNG project in support of the engineering, procurement, and construction contract by JGC Corporation and Chiyoda Corporation of Japan in December 2016. The Yamal LNG project, which had begun shipping LNG in late 2017, shipped its first cargo of LNG to Japan last month . Among Moscow’s chief concerns about the territorial discussion is the national security threat that could arise from northwards territorial expansion by Japan, which is closely allied with the United States. How much Japanese investment in the Arctic 2 LNG project can help further Tokyo’s foreign policy objectives warrants close attention.

Geopolitics—The Arctic 2 LNG Investment Helps Russia Mitigate Overdependence on China

Hydrocarbon trade and investment has been an important linkage between the Chinese and Russian economies. The ties have strengthened further following the U.S.-led sanctions against Russia over Crimea since 2014, as Russian access to Western financing became severely limited. Most notably, Western sanctions led Russia to turn to investment by CNPC and the Silk Road Fund (SRF) to realize the $27 billion Yamal LNG project, in which CNPC and SRF gained a 20 percent stake and a 9.9 percent stake respectively. Also, Western sanctions pressured Gazprom to wrap up the decade-long negotiation with CNPC in May 2014. When it pursued LNG projects in more recent years, Russia actively sought for a greater variety, including Saudi Arabia, India, as well as Japan, strongly indicating interest in diversifying investors and perhaps halt its growing dependence on China.

In this light, the Japanese investment in the Arctic 2 LNG project helps Russia mitigate further reliance on Chinese financing. Meanwhile, the development comes at the time when some Japanese have grown concerned that a stronger Russo-Sino bond could disadvantage Tokyo geopolitically. While the Japanese stake alongside the Chinese and French stakes in the Arctic 2 LNG project may assuage such concern, the rise of China as a global LNG importer appears irreversible just as its rise as a geopolitical player.

Jane Nakano
Senior Fellow, Energy Security and Climate Change Program