Japan Elbows its Way into Far East: Not Only for Energy

Japan has gained favor of 70 percent of Russians in the Far East area where Corporate Japan has invested heavily. But the same percentage of Japan's population do not like Russia because of the pending issue of the four northern islands. So why should Japanese put their money in a country they do not like? The key is energy.

Putting the stakes of energy security on Far East

Japan has very poor energy endowment and has been haunted by the fear of energy shortage. It has implemented a diversified energy policy for a long time which means a balanced menu including nuclear energy, natural gas, coal and oil plus exploitation of new energy in a bid to reduce its dependence on oil. 50 percent of Japan's energy is from oil, down from the ever highest 77 percent. It's still high. In addition, 87.9 percent of its oil is from the turbulent Middle East. That's why Japanese government gives the priority to less reliance on oil from the Middle East, diversified energy consumption and more oil supply sources.

Russia, by contrast, is rich in oil resources. As it is near Japan, delivery of oil from Russia through pipelines and then shipment is convenient and economical. If Russia exports 1 million barrels of oil on a daily basis, as Japan expects, this will reduce Japan's reliance on Middle East to 65 percent.

Besides that, Japan is worried that its interest in the Northeast Asian area will be threatened immediately if Chinese clout extending into Russia's Far East cannot be curbed. And Japan believes that a dominant role in oil in the Far East has a direct bearing on Japan's position and interests in the whole Asia. From this concern arises Japan's ambition of weakening China's voice in the Russia's Far East by grabbing the oil resources there.

Pumping into Sakhalin opportunities

The lion share of foreign capital into Russia goes to Sakhalin in the Far East. This island boasts very rich oil and natural gas and it is only 100 plus kilometers to Japan. So Japan has shown extraordinary enthusiasm in the development of the oil and gas resources there.

Japan used to refuse to have economic and trade exchanges with Russia due to the territorial issue. Russia's economic breakdown in the 1990s' made many Japanese businesses regard Russia a forbidden land. But finally Japan had to change its principle given the increasing pressure from the tightened world's energy supply. Now Corporate Japan has begun to realize the opportunities in the Far East. As the biggest investor in this area, in 2003 Russia-Japan trade surged by 42 percent and Japan's exports to Russia nearly doubled.

Japan is involved in two projects of oil and gas exploitation in Sakhalin. In one project with a total investment amounting to 15 billion USD, Sakhalin -1, two Japanese companies hold 30 percent shares. A pipeline will deliver the oil and gas to Tokyo via China and South Korea. An energy company jointly funded by Russia, US and Japan, will pump 10 billion USD into the other project, Sakhalin-2. Mitsui and Mitsubishi take 25 percent and 20 percent of the stakes in the company and four Japanese power and natural gas companies have placed long-term orders for purified gas on Russia.

Involvement into the development of oil and gas resources in Sakhalin is of strategic significance to Japan not only in energy supply and economy, but also in the expansion of Japan's influence across the Pacific and northeast Asia, which in turn would help the resolution of the territorial issue. Considering this, the Japanese government has given full support to the projects.

And they have received positive response from Sakhalin government. With rigid coldness and poor infrastructure, the local economy, struggling in negative growth since the collapse of the former Soviet Union, is so thirsty for foreign capital. The estimated 1.5 billion USD revenue to be generated by the 32-year of oil and gas exploitation projects has prompted Sakhalin government to try its best to facilitate the project.

Power is another thing that Japan expects from Sakhalin. Energy in Sakhalin is cheaper than that in Japan by two-thirds and Japan has been suffering from a power crunch in recent years. An agreement signed last July involving generation and distribution of 4000 megawatts power supply in Japan has, as Japan's media put it, turned Japan's former enemy into its partner.

The most welcome

Japanese are the most welcome in the Far East which covers 36 percent of Russia's territory and 5 percent of the country's total population. Except for Japan's massive investment in energy there, three other reasons also contribute to this .

First, Japan recognizes the importance of building good relationship with the local government. In the Russian political system, local governments have great voice in issues related to local interests. Official and commercial delegations from Japan always visit local officials in their trip to the Far East. They also invite those Russian officials to Japan for "better communication". Administrative executives of Russia's Far East keep lobbying in Moscow for visa-free entry of Japanese citizens into the area.

Secondly, Japan has heavy social and cultural investment in this area. Japan is a large exporter of autos and electric appliance in the Far East. Japanese second hand cars, cheap and well-performed, are running on the streets there. Japan made appliance, though expensive, is very popular there for their good quality. Local residents prefer Japan made major appliance and China made daily necessities. But they are more impressed by Japan.

The Japanese also pay special attention to cultural exchanges with this area. The most typical example is how Japanese patronizes Russia's puppet play in the Far East when the ancient traditional art form began its low ebb. This has encouraged positive attitude toward the Japanese among the local people. What's more, Japanese traditional art troupes often offer free performances for Russians.

Thirdly, the Japanese are making great efforts on erasing prejudice against them among Russians. There were many wars between the two countries. And for most Russians, if they know something about Japan, they learn it from the history of the wars. Japan has a clear idea about it. A monument in Vladivostok erected by Japan as a gift expresses the wish that the two countries would remember the history and never engage in war. Some health care centers have also been built by the Japanese in the Far East to improve their image.

Actually Japan has done a lot more than that in Russia's Far East. It has not invested much in this area except on energy. Some of their investment is no more than a lip service. But their efficient, smart input of limited resources has proved to be very successful and well paid off.