Russia on Wednesday is set to begin production of liquefied natural gas on Sakhalin Island, greatly increasing its role as an energy exporter in the Asia-Pacific region.
Japanese Prime Minister Taro Aso and Russian President Dmitry Medvedev are to attend the opening of an LNG plant - the first of its kind in Russia - which will supply markets in Japan, South Korea and the United States.
Aso's visit underlines the importance of the project for Japan, which is highly dependent on Middle Eastern energy sources and is now turning to its oil- and gas-rich neighbor to the north.
It is the first visit to Sakhalin by a Japanese prime minister since World War II, when Japan controlled the southern part of the island. Hundreds of thousands of Japanese were evacuated after the Soviets took Sakhalin in 1945.
Sakhalin is also near four small islands at the center of a long-running territorial dispute that has prevented Russia and Japan from signing a peace treaty to formally end World War II.
The launch of the LNG plant establishes Russia as a major energy exporter to Asia as well as Europe, said Jonathan Stern, director of gas programs at the Oxford Institute for Energy Studies.
"What it does is to make them a player in the LNG business in the Pacific, and that is a big deal for the future given how much gas there is in the Pacific that they've got," Stern said.
The plant is expected to produce 9.8 million tons of liquefied natural gas per year, or about 4% of the world's total LNG supply, according to Sakhalin Energy, the consortium behind the project.
Around 65% of the plant's production will go to Japan with the rest roughly split between South Korea and the United States, the company says.
Its opening marks the culmination of Sakhalin-2, a $20-billion oil and gas project that has been led by Russian state-run energy giant Gazprom ever since a controversial change of ownership in 2007.
Gazprom (GAZP.RS) acquired 50% plus one share in Sakhalin-2 after the Russian government in 2006 accused its developer, then led by U.K.-Dutch oil major Shell (RDSA), of massive environmental abuses and revoked its permit.
Analysts said the real issue was not the environment, but instead Russia's anger at the 1994 production sharing agreement that let the consortium develop the lucrative project, struck while Russia in a state of economic crisis.
Shell now owns a 27.5% stake in the project, while Japan's Mitsui and Mitsubishi groups own 12.5% and 10% respectively.
When Aso and Medvedev meet on Sakhalin, Japan is likely to bring up the row over the disputed islands while Russia is more keen on enhancing bilateral economic ties, a senior Japanese diplomat said ahead of Aso's visit.
"Russia is mainly interested in which projects Japan and Russia can jointly work in the Asia-Pacific region," he said, on condition of anonymity.
"Japan's position will remain the same. Our first and foremost issue with Russia is the territorial issue," the diplomat said.
Japan demands the return of four islands - called the southern Kuril islands by Russia and known in Japan as the Northern Territories - which Soviet troops seized days after Tokyo's surrender in World War II in 1945.
The two countries have never signed a peace treaty formally ending the war due to the dispute.