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Asahi Shimbun: Russia’s Sakhalin island

Asahi Shimbun headline: Japan will most likely lose out to China in the competition to secure a regular supply of natural gas from a major development project off Russia’s Sakhalin island.

Published: Oct 23, 2006

According to sources, U.S. oil giant ExxonMobil Corp. has recently agreed to begin full-scale negotiations with China to sell gas from the Sakhalin I project

Coming on top of the stalled Sakhalin II project and a large cut in Japan’s rights to an Iranian oil field, the move is yet another setback in Japan’s efforts to secure a stable supply of energy

Both Sakhalin I and II are oil and gas developments off the northern shores of the Russian island north of Hokkaido. Japanese companies are part of both consortiums in charge

The Sakhalin I consortium is led by ExxonMobil. Earlier this month, the company signed a memorandum with the China National Petroleum Corp. as a step toward a formal deal, the sources said

Japan had hoped to import 6 million tons of natural gas annually from Sakhalin I, which would represent about 10 percent of its annual imports

If China closes the deal, those hopes would be dashed

The Sakhalin I project consortium consists of five companies from Japan, the United States, India and Russia. An ExxonMobil subsidiary is in charge of contract negotiations

The Japanese participant, Sakhalin Oil and Gas Development Co. (SODECO), owns a 30-percent stake. SODECO was set up by trading houses Itochu Corp., Marubeni Corp. and government-affiliated oil companies, among others

Japan does have a deal to import oil from Sakhalin I, starting later this month

The Sakhalin II project, led by the Royal Dutch/Shell Group along with Japan’s Mitsui & Co. and Mitsubishi Corp., has been stalled since the Russian government suddenly revoked its environmental approval in September

It was to start selling natural gas to Japan in 2008, but a delay is now expected. Also, earlier this month, government-affiliated Inpex Corp.’s 75-percent stake in Iran’s Azadegan oil development was cut to 10 percent. The decision came amid growing international pressure to urge Tehran to drop its nuclear programs.

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