Japan pipes up for gas deal
Published: 01 September, 2009, 19:13
TAGS: Manufacturing, Russia and the global economy, Finance, Gas
Just a month after Gazprom made the first weld in the Sakhalin-Khabarovsk-Vladivostok pipeline, it appears that the project lacks funding. In the search for money, Gazprom has turned to Japan.
The Sakhalin-Khabarovsk-Vladivostok pipeline will be the largest gas artery in Russia’s Far East. The first 7 billion cubic metres of gas a year is scheduled for delivery in 2011, but Gazprom is short of cash.
So to meet the deadline it’s asked Japan for a $1 billion loan, and in response Japan has offered to supply pipes instead of cash. Analyst, Aleksandr Nazarov, oil and gas analyst at Metropol, sees upside in the proposal.
“This loan could be good, as it can help save some working capital. This could be a potential improvement in relationship between Russian and Japanese business. Moreover, Gazprom could potentially guarantee some supply contracts with Japan or Korea as part of this loan contract.”
Pipes are the main expense in construction of the pipeline. Russia’s biggest pipemakers such as Severstal, TMK and United Metallurgical Company have already applied for a tender to provide them.
Other Russian pipemakers are also working at less than full capacity and are looking for orders, according to Aleksandr Deineko, Head of the Pipe Industry Development Fund.
“Our attitude to the fact that Japan links this loan with pipes supplies is negative. We are fully capable of satisfying demand both in terms of quantity and quality. Besides, pipe-making plants form single industry-cities in a number of Russian regions. So, if the order goes to Japan, thousands of people will lose their jobs.”
The total cost of the pipeline is $11 billion. Transportation of the pipes from Japan to the Far East may be cheaper, but Japanese pipes are 15-20% more expensive than Russian ones.
A final decision is yet to be made. But some experts believe the question of money is now a priority for Gazprom, and Russian pipemakers may lose their share in this project.
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Japan would not invest the money to this project. What I can see is that for Japan, this is not attractive investiment at all. If Russia wants to supply gas to Japan, then why they did not develop the pipe line heading South directly to Northean most point of Hokkaido?? What Japan see is that if the money invested, there is no 100% guarantee on the constant supply. Very sure that Russia will say "China and Korea pays better" "We need to supply gas to the local". Of cause I don't deny the supply to the local but then the money from Japan will be used not for Japanese profit. Also, this investiment, Russia cannot ask China or Korea since they for sure say, "then pull the pipe directly into our nation". This is Russia that choose this line, now "budget runs out so we need more money!!", everyone would say "then your planning is very poor". If there poor planning, then no one would dare to purchase from this supplier since later, contract means nothing to this seller...
I do not believe easily in what is served to the media. It is very hard for Russia and Japan to develop stronger economic ties, as the watchfull eyes are out there insuring that Japan does not get too cozy with its neighbors. In such a political climate, it makes sense for both countries to come up with various schemas to gradually increase the economic activity without getting too much attention. So, Gazprom "does not have money". And, coicidentally, Japan "has pipes". In these tough economic times, Japan can use some job-generating deals, while increasing the stake in the major pipeline --- all that with a very little fanfare. In Russia, ways will be found for Russian producers to get some part of the deal, and the price differential will be calculated in the deal. Japan needs badly to diversify its sources of energy, and slowly --- but surely, Japan is getting there. However, until Japan becomes more of an equal partner with US, it will be difficult for the country to integrate itself in the economy of its own region. For purely political reasons, Japan has missed out on the economic resurgence in both China and Russia. Now, with the economies world-wide in the dumps, it will be easier for Japan to persuade its long time friend and supporter to lower the anxiety level, and allow Japan to use its tremendous advantages in the development of the Asia's far East.