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Japan-Russia Natural Gas Pipeline Project Outlines

Background for Implementing the Project

The high cost that Japan pays to import LNG, the highest in the world, not only puts pressure on the management of electric power companies and the customers and industries who have to bear the burden of rate hikes, but is also a factor in the country’s huge trade deficit. Reduction of LNG procurement costs is therefore an urgent task for both the public and private sectors. From the viewpoint of restructuring energy strategies, as well, there is an urgent need to reduce procurement costs of fuel and other materials, but also to diversify and distribute energy supply sources.
Our country imports all natural gas in the form of LNG, while other countries in Europe and America employ both LNG and pipeline, which is more favorable for them in terms of energy security and price negotiation. Since the project uses pipeline for transportation of natural gas, it will be possible to make up for the disadvantage by coordinating with LNG operators. It will also be possible to expand the use of distributed energy, including renewable energy and cogeneration, by coordinating with the pipeline.

Overview Image of the Project

map

The project is an extremely efficient, simple gas transportation and supply service, directly connecting by pipeline the Russian pipeline at southern Sakhalin with destinations of demand in eastern Japan. By using the trunk pipeline from southern Sakhalin to eastern Japan, it is possible to develop various related businesses including gas sales, gas power generation, cogeneration, city gas service, compressed gas service, gas chemicals, and information and communications service. Supply lines will be developed from trunk pipeline into necessary and possible areas.

Note:
The map on the left shows the Japan-Russia Natural Gas Pipeline plan added to the extensive natural gas pipeline route planned by the government.

Evidence for the Economic Feasibility of the Project

Securing of sufficient demand destinations

Sufficient consumption of pipeline gas will be insured by establishing new gas power stations (IPP, PPS, etc.) to make up for the loss of nuclear power generation and converting fuel used by the existing power plants along the periphery of the pipeline route of the project. Certainly it will be also possible to secure sufficient demand for pipeline gas from cogeneration, supplemental power sources to support renewable energy, industries and business operations, and other gas utilization services along the pipeline route.

Securing of sufficient supply sources

With the longstanding cooperation of the Government of the Russian Federation over the years, we have been developing the project plan on the assumption of connecting the Japan-Russia pipeline to the Russian pipeline linking groups of gas fields including Sakhalin 3, etc.

Evidence for the Technical Feasibility of the Project

Development of the Russian part of pipeline

There are no particular technical problems with the pipeline from the gas fields in northern Sakhalin to southern Sakhalin since such a pipeline has already been developed and operated by Sakhalin 2. The technical feasibility of constructing pipeline from southern Sakhalin to northern Hokkaido has already been investigated by a group led by a major Gazprom Group engineering company, which concluded that there would be no particular technical problems.

Development of the Japanese part of pipeline

The technical feasibility of constructing pipeline from northern Hokkaido to eastern Aomori Prefecture was jointly investigated and confirmed by major engineering companies in the U.S. and Japan. As the pipeline between eastern Aomori Prefecture and the eastern Tokyo metropolitan area will take an onshore route based on existing public infrastructure such as national roads, it will be implemented smoothly with the cooperation of the Japanese government. There are sure to be no environmental problems with fishing rights.

Earthquake countermeasures

The trunk pipeline was not damaged at all and remained quite normal even after the 2004 Niigata Earthquake and the 2011 Great East Japan Earthquake, which proves that Japan still has the top quake-resistant engineering technology in the world. Now the Japanese government has set out a policy to develop extensive natural gas pipeline nationwide, and this also confirms the trustworthiness of our quake-resistant engineering technology.

Implementation System of the Project

Financing system

As the profitability and cash flows of the project are sufficiently clear, the necessary funds for the project can be easily procured by the cooperation of many related businesses both in Japan and overseas. The plan is to raise funds by borrowing capital from such domestic and overseas companies involved in related businesses and obtaining loans from Japanese government-based financial institutions and from private financial institutions both domestic and foreign.

Organization system

The organization system of the project in Japan calls for the establishment of a consortium based on leading corporations in fields related to infrastructure, energy and finance. For overseas companies wishing to make entry into the project, Russian companies will be given first priority, with other leading companies from America, Europe, Asia and Oceania that have been cooperating for implementing the project allowed to make entry as well.

Advantages of Implementing the Project

Advantages on the Japanese side

Implementation of the project will be able to make a great contribution in helping to deal with certain important pending national policy issues facing the Japanese government: First, the policy of speeding the recovery of the disaster areas damaged by the Great East Japan Earthquake, and developing necessary infrastructure there. Second, the policy of reducing nuclear power plants, and securing supplemental power sources. Third, the policy of developing an extensive natural gas pipeline, and implementing it under private sector initiative. Fourth, the policy of expanding renewable energy and ensuring measures necessary for its stable supply. Fifth, the policy of reducing the cost of importing gas, and diversifying necessary means of importing gas.

Advantages on the Russian side

The Russian side will be able to obtain big profits by implementing the project. The first reason for this is that aside from exports from LNG plants, this will enable the stable long-term export of natural gas to Japan. Secondly, the location of the gas fields close to southern Sakhalin makes it possible to secure good profits at low costs because the direct connection from there to the East Japan pipeline means there is no need for huge capital investment to construct any LNG liquefaction plant. Thirdly, through the pipeline, Russia will be able to enter into various downstream businesses on a preferential basis, including gas power plants in Japan.

For its Earliest Possible Implementation

In order to implement the project as soon as possible, we are committed to taking all necessary action by establishing a Japanese consortium with the participation of related businesses and calling for understanding and cooperation from the ruling government as well as from customers and consumers. We will strive to make steady progress toward the earliest possible implementation of the project by asking Russia to develop its implementation system from a broad viewpoint of mutually-beneficial economic development, and promoting the strengthening of cooperation between Japan and Russia as well as by encouraging related organizations in the U.S., Europe, Australia and Asia to cooperate and participate in the project.