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June 27, Bloomberg. Japan will start receiving its first shipments from the $13 billion Sakhalin-1 oil and natural gas project this year, helping the world's second-largest economy ease dependence on imports from the Middle East.

The Exxon-Mobil Corp.-led venture will begin sending oil to Japan "in the next few months,'' Shiro Matsumoto, deputy general manager of the project department at Sakhalin Oil & Gas Development Co., a Japanese investment company with a 30 percent stake in the venture, said on June 21. First flows to mainland Russia began in October.

The project, north of Japan, will allow the country to reduce the amount of oil it buys from the Middle East, where threats of supply disruption have pushed prices higher. Sakhalin oil may help refiners such as Nippon Oil Corp. cut costs from shipping similar low-sulfur varieties from Saudi Arabia, Abu Dhabi and West Africa.

"Ninety-percent dependency on the Middle East is too high,'' said Yasuhiko Nagata, senior economist at the oil and gas strategy unit of the Institute of Energy Economics, Japan. "When Russian oil comes in, it will spur Japan's diversification of import sources.''

Sakhalin Oil & Gas will sell most of its oil entitlement to refiners in Japan, Matsumoto said by phone from Sakhalin. The light, low-sulfur Sokol grade of oil will be shipped from Russia's Far East port of DeKastri. It's piped to the port from offshore processing plants on the west coast of Sakhalin island.

This year, the project will raise production fivefold to 250,000 barrels a day. The project's three offshore fields -- Chayvo, Odoptu, and Arkutun Dagi -- have recoverable reserves totaling 2.3 billion barrels. They took a decade to develop.

Asian Benchmark

Expectations that Sakhalin oil will become Asia's home-grown benchmark are increasing, because it is a North Asian grade that could compete against oil dominantly shipped from the Middle East into Asia, Nippon Oil Chairman Fumiaki Watari said. Dubai and Oman crude oil are used to set prices in Asia.

"Asia lacks a crude oil which can compete with oil from the Middle East,'' said Watari, who is also chairman of the Petroleum Association of Japan. "We'll take Sakhalin-1 oil if it's attractive'' in terms of quality and price.

The Middle East accounts for about 90 percent of Japan's oil imports, up from 68 percent in 1987.

All five of Japan's top oil suppliers are from the Middle East, led by Saudi Arabia. Japan is reducing the amount it brings in from Iran, the third-largest supplier, on concern the standoff over the Islamic Republic's nuclear program increases the risk of supply disruption.

Japan purchased 4.29 million barrels of oil a day in the year ended March 31, according to data from the Ministry of Economy, Trade and Industry.

Oil Assets

Japan, which is vulnerable to supply cuts because it relies on imports for almost all of its oil, is seeking ways to secure natural resources over the next 25 years as China and India step up acquisition of oil and gas assets abroad.

The government plans to help Japanese companies increase overseas oil assets to 40 percent of the country's total oil imports by 2030, from 15 percent now, the Trade Ministry said in an energy policy proposal on May 29.

Japan has lobbied Russia for more than three years to build a pipeline to carry Siberian oil to the Pacific coast for shipping on to Japan. When Japanese Prime Minister Junichiro Koizumi met President Vladimir Putin in St. Petersburg in May 2003, he asked Putin to agree to extend a pipeline linking eastern Siberia and China to the Pacific.

Russian Oil

Japan's government, refiners, trading houses and exploration companies are keen to participate in Russian oil projects.

A unit of Mitsui & Co. owns 25 percent of the Sakhalin-2 oil and gas project, operated by Sakhalin Energy Investment Co. Mitsubishi Corp. holds a 20 percent stake through its subsidiary. Royal Dutch Shell Plc has a controlling 55 percent holding in Sakhalin-2, which pumped 70,000 barrels a day of Vityaz oil in 2005.

Sakhalin Energy expects to keep production unchanged this year, Belentina Kiseleva, a company spokeswoman said last week.

Sakhalin-1's partners comprise Exxon Neftegas Ltd., Japan's Sakhalin Oil & Gas Development, two affiliates of OAO Rosneft and India's state-owned oil company ONGC Videsh Ltd.

Sakhalin Oil & Gas Development is a Japanese joint venture, with the government holding a 50 percent stake. Itochu Corp. and its unit own 18.12 percent. Japan Petroleum Exploration Co. has 14.46 percent and Marubeni Corp. holds 11.68 percent.