Russia seizes control of Sakhalin gas project, raises stakes with West

Russia seizes control of Sakhalin gas project, raises stakes with West | Reuters
▻https://www.reuters.com/business/energy/russia-decree-sakhalin-2-project-knocks-mitsui-mitsubishi-shares-2022-07-01
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A general view of the liquefied natural gas plant operated by Sakhalin Energy at Prigorodnoye on the Pacific island of Sakhalin, Russia July 15, 2021.
REUTERS/Vladimir Soldatkin

President Vladimir Putin has raised the stakes in an economic war with the West and its allies with a decree that seizes full control of the Sakhalin-2 gas and oil project in Russia’s far east, a move that could force out Shell and Japanese investors.

The order, signed on Thursday, creates a new firm to take over all rights and obligations of Sakhalin Energy Investment Co, in which Shell and two Japanese trading companies Mitsui and Mitsubishi hold just under 50%. read more

The five-page decree, which follows Western sanctions imposed on Moscow over its invasion of Ukraine, indicates the Kremlin will now decide whether the foreign partners can stay.

State-run Gazprom already has a 50% plus one share stake in Sakhalin-2, which accounts for about 4% of the world’s liquefied natural gas (LNG) production.

The move threatens to unsettle an already tight LNG market, although Moscow said it saw no reason for Sakhalin-2 deliveries to stop. Japan imports 10% of its LNG each year from Russia, mainly under long-term contract from Sakhalin-2. The action also raises the risks facing Western companies still in Russia.
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Shell, which has already written off the value of its Russian assets, made clear months ago it intended to quit Sakhalin-2 and has been in talks with potential buyers. It said on Friday it was assessing the Russian decree.

Sources have said Shell believed there was a risk Russia would nationalise foreign-held assets, while Putin has repeatedly said Moscow would retaliate against the United States and its allies for freezing Russian assets and other sanctions.

Sakhalin-2, in which Shell has a 27.5% minus one share stake, is one of the world’s largest LNG projects with output of 12 million tonnes. Its cargoes mainly head to Japan, South Korea, China, India and other Asian countries.