Using Sakhalin Natural Gas in Japan
Hartley, Peter R.
Brito, Dagobert L.
Reserves of natural gas offshore from Sakhalin Island provide a new, relatively close, source of energy for Japan. Sakhalin gas could be imported by pipeline or as LNG, or it could be converted to electricity and transmitted to Japan via a high voltage line. Despite the recent drop in LNG shipping costs, none of these methods of importing energy from Sakhalin is likely to be substantially cheaper than the others. Nevertheless, LNG may be the preferred option. First, LNG is associated with less technological, geological and environmental risk than is a gas pipeline. Second, lower shipping costs together with some other recent changes in the LNG industry are likely to favor shorter term multilateral trades of LNG relative to long term bilateral and project-specific contracts. Such a radical change in the worldwide market for LNG would reduce the risk of a Sakhalin LNG project. By contrast, building a pipeline or high voltage electricity transmission line would tie the Japanese economy more closely to political and economic developments in Russia.