Russia takes control of the Sakhalin gas project and raises stakes with the West


Tokyo / London — President Vladimir Putin has raised interests in economic warfare with the West and its allies by legislation that gives full control of the Sakhalin-II gas and oil projects in Russia’s Far East. Japanese investor.

Signed on Thursday, the order will create a new company that will take over all the rights and obligations of Sakhalin Energy Investment Co., Ltd., in which Shell and Japanese trading companies Mitsui & Co. and Mitsubishi own less than 50%.

The five-page decree following the Western sanctions imposed on Moscow over the invasion of Ukraine indicates that the Kremlin will determine whether foreign partners can stay.

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

Moscow said there was no reason to suspend delivery of Sakhalin 2, but the move could destabilize the already tight LNG market. Japan imports 10% of LNG from Russia each year, primarily under long-term contracts from Sakhalin 2. This action also increases the risks faced by Western companies still in Russia.

“Russian legislation has effectively confiscated foreign stocks of Sakhalin Energy investment firms, showing continued tensions,” said Lucy Karen, chief analyst at consultancy Wood Mackenzie. I have. “

Putin’s move is already adding complexity to the complex process for those looking for an exit, although many Western companies are already full and others say they will quit. Moscow is preparing a law that is expected to pass soon to allow the state to seize the assets of Western companies that it has decided to go.

Shell, which has already canceled the value of Russian assets, said it intends to quit Sakhalin 2 a few months ago and is discussing with potential buyers. She said it was on Friday it was evaluating Russian legislation.

Sakhalin-II, with Shell holding a 27.5% minus one share, is one of the world’s largest LNG projects, producing 12 million tonnes. Its cargo is mainly destined for Japan, South Korea, China, India and other Asian countries.

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Kremlin spokesman Dmitry Peskov said Russia had no reason to stop supplying LNG from Sakhalin 2, and said the future of other projects and investments would be determined on a case-by-case basis.

Gas plant-saccharin
Overview of a liquefied natural gas plant operated by Sakhalin Energy on July 15, 2021 in Prigorodnoye, Sakhalin, Pacific Island, Russia. (Vladimir Soldatkin / Reuters)

“There are no general rules here,” he said.

Japan, which relies heavily on imported energy, said it would not abandon its interest in Sakhalin-II, which has a 12.5% ​​stake in Japan’s Mitsui and a 10% stake in Mitsubishi.

Japan’s Prime Minister Fumio Kishida said on Friday that Russia’s decision would not immediately stop LNG imports from development, but Japan’s Minister of Industry Koichi Hagiuda said the government did not consider the decree to be a requirement.

Mr. Hagiuda told reporters, “This decree does not mean that Japan’s LNG imports will be impossible immediately, but it is necessary to take all possible measures in case of unforeseen circumstances.” Stated.

He said Japan has a couple of weeks of LNG inventories held by utilities and city gas suppliers, and Hagita is seeking alternative supplies from energy personnel in the United States and Australia.

According to the decree, Gazprom holds its shares, but others must ask the Russian government for shares in the new company within a month. The government decides whether to approve the request.

Gazprom, Sakhalin Energy, and the Russian Ministry of Energy did not respond to requests for comment.

A Mitsubishi spokesman said the company is discussing how to comply with the law with Sakhalin and its Japanese government partners. Mitsui did not comment immediately.

Shares of Mitsui and Mitsubishi Corporation fell by more than 5% on Friday. Shell’s share has risen.

Shell CEO Ben van Baden said Wednesday that the company is “on track” with plans to withdraw from the Sakhalin Energy joint venture without giving details.

Russia’s LNG production from projects such as Sakhalin 2 is likely to suffer due to the lack of available foreign expertise and components, said Saul Cabonic, Head of Integrated Energy and Resources Research at Credit Suisse. Stated.

“This will significantly tighten the LNG market over the last decade,” he said.

Yuka Obayashi, Emily Chow, Ron Busso

Reuters

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