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Economy

Japan and Russia plan LNG hub in Far East

Transfer terminal to lower shipping costs from Siberian production sites

Novatek produces LNG in northern Russia. The gas reaches Asian destinations faster than U.S. shale gas, but transport costs are high.

TOKYO -- Japan seeks to ease the transport of liquefied natural gas from northern Russia by cooperating with Moscow on construction of a transfer hub in the country's far east, as Tokyo looks to diversify supplies of the energy source to guard against political risks.

Trading house Marubeni and shipbuilder Mitsui O.S.K. Lines are among the Japanese companies considering participation in Russian gas producer Novatek's plan to complete an LNG terminal in 2023 on Russia's Kamchatka Peninsula. Tokyo also might provide aid through public financial institutions such as the Japan Bank for International Cooperation and Nippon Export and Investment Insurance.

Marubeni is conducting feasibility studies on the project and looks to decide by 2019. Japanese LNG plant builders have shown interest as well.

The Kamchatka hub is intended to reduce the cost of transporting LNG from a production center on the Yamal Peninsula in Siberia's far north. Transporting the gas by eastern sea routes requires icebreaker ships in winter. Though LNG from Yamal reaches Asian destinations faster than U.S. gas delivered via the Panama Canal, transportation costs are high. Transferring the LNG to conventional tankers at the Kamchatka station will cut these expenses.

European energy companies such as Total have begun preparations for a separate production facility in Yamal.

Japan intends to have a range of LNG suppliers to prepare for geopolitical risks that could cut off certain sources. Tokyo has begun to increase procurement of shale gas from the U.S., which is aggressively promoting these exports by adding more routes through the Panama Canal.

Japan imports about 84 million tons of LNG yearly, with the largest proportion coming from Australia. Yamal's annual production looks to total 16.5 million tons, and deposits around the peninsula are said to be the largest in the world. China, which is working to secure energy supplies, is also thought to have expressed great interest in Yamal LNG. Japanese companies also could gain better trading terms if a sea route to Asia's biggest buyers is established.

But some advise caution about proceeding with energy projects in Russia. State-run oil company Rosneft sued U.S. and Japanese operators of the Sakhalin-1 oil and gas project, located on Sakhalin Island north of Japan, claiming "unjust enrichment and interest gained by using other people's money," according to court filings. Rosneft is not involved in the Kamchatka plan.

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