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Japan Drops Oil Project With Russia After Mailman Brings Marching Orders From Washington

Abe can visit Putin a billion times but without a backbone he can't have an actual relationship with Russia

A Japanese group’s plans to explore for Russian oil with state-run Rosneft PJSC have been stymied by US intervention over sanctions, according to people familiar with the matter.

Washington’s objection to the Japanese oil exploration project in the ocean off Russia’s Far East shows the US Treasury is maintaining a firm line on sanctions, even as some international companies press on with Russian energy deals.

In April, the US rejected a request from ExxonMobil for a waiver to allow it to drill with Rosneft in the Black Sea.

Rosneft signed a preliminary deal with a Japanese consortium of Japan Oil, Gas & Metals National Corporation – known as Jogmec – Inpex, and Marubeni for offshore exploration at a licence block to south west of Sakhalin Island in December. It was one of more than 60 agreements and memorandums signed during Russian President Vladimir Putin’s visit to Japan.

However, since then the US government has objected to the project, according to two people familiar with the discussions who asked not to be identified.

Washington’s objection to the project is based on the principle that its Group of 7 (G7) allies should not “backfill” the sanctions by allowing their companies to carry out projects that US companies would be prohibited from working on. Tokyo’s position is that the project with Rosneft does not represent backfilling, since the Japanese consortium was not competing with US companies, according to one of the people.

As well as political pressure from its closest ally, Japan also risked contravening US sanctions on Russia that prevent foreign companies exploring in deep water with equipment that is 25 per cent or more originated in the US.

Japan’s Ministry of Economy, Trade and Industry declined to comment. The US Treasury Department did not respond to requests for comment.

While the Japanese consortium joins Exxon in being frustrated by sanctions, some Chinese, Indian and European companies are pressing ahead with projects in Russia. China’s Beijing Gas Group last month completed a US$1.1 billion deal to purchase a stake in Rosneft’s Verkhnechonskneftegaz unit. Italy’s Eni SpA is set to commence exploration drilling with Rosneft in the Black Sea this summer, Rosneft chief executive Igor Sechin said in May.

The licence area due to be explored by Rosneft and the Japanese group – which the companies did not name but can be identified as Central Tatarsky by maps they published – includes areas deeper than 152 metres. It is also subject to US sanctions on the provision of equipment and services to Russian deepwater oil projects, the people said.

A spokesman for Inpex wasn’t immediately able to comment. Marubeni and Jogmec declined to comment, citing a confidentiality agreement. Rosneft also declined to comment.

Sechin said last September that Rosneft planned to carry out 2D and 3D seismic surveys at the Central Tatarsky licence starting in summer 2017. The Japanese consortium had planned to use Shigen, a seismic vessel owned by the Japanese Ministry of Economic, Trade and Industry, to carry out the research, Jogmec said in a December statement. As of July 13, the vessel was off the east coast of Japan, on its way to the west coast port of Nigata, according to ship tracking data.

The US intervention is a blow to Japanese hopes of converting warmer relations between Prime Minister Shinzo Abe and President Putin into economic gains. The Japanese companies said in a joint statement in December that they expected “to strengthen Japan-Russia economic cooperation through this joint project”.

In the past three years, Tokyo has tried to take a diplomatic line that supports its western allies without alienating Moscow. It imposed some sanctions on Russia in 2014, but stopped short of the restrictions on the financial and energy sectors, which the US and EU have imposed.

The Japanese and US governments are still negotiating and may yet find a way for the project to go ahead, the people said. Some of the licence lies in waters shallower than 152 metres, which is not classified as deep water under the sanctions. A Japanese government official said that all Japanese projects would comply with sanctions.

Source: South China Morning Post

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