April 26, 2008 / 11:50 AM / 9 years ago

FACTBOX: Key issues in Japan-Russia relations

(Reuters) - Japanese Prime Minister Yasuo Fukuda will meet Russian President Vladimir Putin and president-elect Dmitry Medvedev in Moscow on Saturday for talks.

Below is a list of key issues that could be discussed:

TERRITORIAL DISPUTE

A dispute over four sparsely populated islands in the Pacific has prevented Russia and Japan from signing a peace treaty ending World War Two and overshadowed relations for more than 60 years.

The islands, known as the Southern Kuriles in Russia and the Northern Territories in Japan, were seized by the Soviet Union after it declared war on Japan on August 8, 1945, forcing about 17,000 Japanese residents to flee.

Most people in the islands depend on fishing for their livelihood and Japan, a major fish consumer, would gain rich fishing grounds if the islands were returned. The islands are also close to oil and gas production regions of Russia.

OIL PIPELINE

Russia is building an oil pipeline that will eventually link fields in eastern Siberia to the energy-hungry markets of the Far East and the Pacific basin.

There is competition between Japan and China over which will receive the lion’s share of crude from the pipeline.

SAKHALIN-1

Russian gas export monopoly Gazprom has said it wants to sign a deal to buy the entire annual gas output from the Sakhalin-1 project off Russia’s Pacific coast.

The field is run by U.S. oil major Exxon Mobil, Russian state oil firm Rosneft, Japan’s Itochu and Marubeni and India’s

ONGC.

The firms that run the field had invested more than $12 billion to launch oil production in 2006 which reached a peak oil output of 250,000 barrels per day last year.

The companies had signed a deal to supply China with 8 bcm of gas a year and had hoped to start supplies from next decade. But the plan ran into trouble after Gazprom said gas should be used to supply Russian Pacific regions.

Some observers suspect gas would in fact be redirected to the liquefaction plant of Sakhalin-2 for export to Asia.

SAKHALIN-2

- Japan’s Mitsui and Mitsubishi have a stake in Sakhalin-2, which includes one of the world’s largest liquefied natural gas plants.

Royal Dutch Shell and its Japanese partners last year sold half of their $22 billion Sakhalin-2 project, Russia’s biggest single foreign investment, to Gazprom after months of government pressure.

Gazprom said this month that it will start exporting liquefied natural gas (LNG) by the beginning of 2009 from Sakhalin-2.

Sakhalin Energy, the operator of Sakhalin-2, has sold over 90 percent of the planned 9.6 million tons per year LNG production under long-term contracts, with 60 percent going to Japan and the rest supplied to South Korea as well as to North America’s West Coast.

Japanese firms have shown an interest in other Sakhalin projects but analysts say Russia is unlikely to allow Japanese firms a significant stake.

TRADE

- Trade between Russia and Japan rose to $20 billion in 2007 from about 5 billion in 2000. Major investors include carmaker Toyota Motor Corp, which last year opened its first plant in Russia.

- Japan, the world’s fifth-biggest emitter of greenhouse gases, has become a major emissions credit buyer and has said it intends to meet its Kyoto Protocol obligations by buying around 100 million tons of credits to be delivered between 2008 and 2012.

These could come from private clean-energy projects in developing countries, or from countries like Russia that, under the Kyoto protocol, have a surplus of governmental carbon credits.

FOREIGN POLICY

-Japan will host a Group of Eight summit in July. Japanese officials said Fukuda’s talks in Moscow would focus on efforts to make the G8 summit a success, including steps towards a new post-2012 framework to fight climate change.

Reporting by Guy Faulconbridge and Christian Lowe, editing by Philippa Fletcher

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