November 1, 2004｜Russia
Director, Japan Center in Sakhalin
At a reunion meeting of the alumni association of the Japan Center in Sakhalin, I raised the following question: “What is the main difference between the Sakhalin 1 (S-1) and 2 (S-2) continental shelf development projects here?” One person answered that it was that, “S-2 contributes to the local economy, but S-1 doesn’t.” This hits the nail right on the head.
The biggest difference between them is their transportation systems for exporting gas. In the S-2 project, a natural gas liquefaction plant for liquefying and transporting natural gas is currently being constructed at the southern tip of Sakhalin Island. In other words, it uses the LNG system. On the other hand, the S-1 project is due to adopt a system that involves the direct transport to Japan of gas in its natural form through a pipeline, but as yet there are no prospects for the realization of this system. Our alumni seem to be of the view that the pipeline system, which merely enables gas to pass through Sakhalin, is of little benefit to the area compared with the LNG system, which is creating a great deal of employment through the construction of the natural gas liquefaction plant, and will also provide work for a certain number of employees after construction is completed.
Incidentally, from the perspective of the Japanese economy and society, consideration of these two systems is incomparably more important than the issue of the employment of Sakhalin citizens. The 21st century is said to be the era of gaseous energy and, in order for human beings to survive on earth, there will inevitably be a shift away from the liquid form used hitherto in favor of a gaseous form, i.e. from oil to natural gas. It is a question of which method is 1) cheaper for delivering gas to Japan; and 2) a more reasonable system.
The LNG system is said to be extremely costly. Natural gas, which is emitted from wells in gaseous form, is supplied as a fuel to the end user in gaseous form as well. Gas companies go to the trouble of liquefying this gas and build liquefaction plants, LNG transport carriers and vaporization facilities at enormous cost in order to do so. Gas and electricity are more expensive in Japan, which is the world’s biggest importer of LNG, than in OECD countries, which use the pipeline system. Accordingly, as far as Japan is concerned, it is difficult to give a clear answer to the question of whether or not a gas pipeline would be cheaper. Due to the price of land and various regulations peculiar to our country, it will by no means be cheap to build the pipeline on land. It would also cost a lot to build the pipeline on the seabed, because of such incalculable problems as compensating those affected in the fishery industry. In terms of the cost of constructing this means of delivery, it is difficult to say which is better.
If we look at the matter from the perspective of reasonableness, the pipeline system would seem to have the edge. Because of the convenience of accessibility to the pipeline, factories can draw off gas to generate their own electricity and, with the development of gas micro-turbines and fuel cells, small and medium-sized companies and households will also begin to draw off gas from the pipeline. It will also contribute to energy conservation measures by efficiently using waste heat. The principle of price competition will come into play between existing electric power companies, and this will encourage a fall in electricity prices.
Looking at it from this perspective, the gas pipeline system would seem not to be a bad thing, since synergy among energy factors could be expected. However, this system would land a direct hit on Electric Power Company X and Gas Company Y, which could be described as existing regional monopolies. Gigantic hydroelectric power stations and nuclear power stations have been built far away from demand centers, thereby causing power losses due to the long distance over which the electricity must be transmitted; in addition, there has been large-scale investment in LNG importing facilities. It was the strength of the regional monopolies that allowed these companies to maintain such inefficient and inflexible management practices. These companies, not to mention the central government ministries that have provided them with administrative guidance, undoubtedly will not welcome with open arms the installation of a pipeline. Since the “LNG, not a pipeline” policy was promoted by the former Ministry of International Trade and Industry, it will not be at all easy to implement a policy shift. There are also barriers here to promoting a trunk pipeline. It was due to these circumstances that the government of Sakhalin Oblast was unable to obtain a clear-cut answer when it pressed a delegation from the Agency for Natural Resources and Energy, which visited the site last summer, on the question of what it intended to do about the gas from S-1. Exxon Corporation has given up on building a pipeline to Japan and is thinking about building one to China. If that happened, it would only be a matter of time before the pipeline reached the ROK. The ROK has already established a domestic pipeline network in the country. If cheap natural gas were introduced to the country, the ROK’s industrial world would go from strength to strength.
As a trading nation, the struggle to lower energy costs – a goal that is said to be as important for industry as rice is to humans – is a perennial challenge for Japan. Though this is acknowledged, it is difficult to take that first step forward. Does this mean that industrial policy cannot be explained rationally? At the beginning of September, representatives of the Federation of Diet Members for the Construction of a National Trunk Gas Pipeline and the Japan Pipeline Development Organization Inc. (JPDO) happened to visit Sakhalin at the same time. Grassroots activities aimed at promoting the pipeline are on the increase in Japan as well.
[Translated by ERINA]