President Vladimir Putin signed a decree transferring the rights to the Sakhalin-2 natural gas project to a new Russian company, a move that could force foreign owners, including Shell Plc, to abandon their investment in the plant.
The decree cites threats to Russia’s national interests and economic security, according to a June 30 statement issued by the Kremlin and signed by Putin. Stakeholders have one month to say whether they will participate in the new venture, and those who choose not to may not be fully compensated, the statement said.
The move could prove complicated for Shell, which holds a 27.5 percent stake in the liquefied natural gas facility in Russia’s Far East. The energy giant announced it would end the project after Russia invaded Ukraine and also said it would not make any new investments in the country.
Chief Executive Officer Ben van Beurden said earlier this week that Shell is making progress selling its stake, which Wood Mackenzie values at $4.1 billion. China’s main state-owned energy company is in talks with Shell to buy its stake in the project, people with the details said in April.
A Shell spokesman was unable to comment immediately.
The world is already grappling with soaring fuel prices as Putin ramps up the use of gas as a weapon, and any attempt by Moscow to take over energy assets could further anger markets. Most Western energy companies are trying to abandon Russian projects but are having trouble finding willing buyers.
Other important foreign-owned Russian energy assets include the Sakhalin-1 oil project and the Yamal LNG project.
The Japanese trading houses Mitsubishi Corp. and Mitsui & Co. together own 22.5 percent of the Sakhalin-2 project, and much of the gas produced there is shipped to Japan. While Japan was quick to impose a series of sanctions on Russia over its invasion of Ukraine, Prime Minister Fumio Kishida said in March the country would not withdraw from Sakhalin-2.
“Our interest must not be undermined,” Japan’s deputy chief of cabinet Seiji Kihara said at a briefing on Friday. The government is still evaluating how Putin’s order will affect the rights and interests of Japanese companies, as well as the country’s LNG imports, he said.
Mitsubishi is discussing the issues with its Sakhalin partners and the Japanese government, a spokesman said in an email. Production is continuing, he said. A Mitsui representative said they are still reviewing the situation.
“We believe this could have a huge impact on gas and electricity buyers in Japan,” analysts at Jefferies Japan Ltd., including Thanh Ha Pham, said in a statement. Japan relies on Russia for about 9 percent of its LNG, and almost all imports from the country are from Sakhalin-2.
Jera Co., a joint venture between Tokyo Electric Power Co. Holdings Inc. and Chubu Electric Power Co., is purchasing 2 million tons of LNG annually from the project under long-term contracts, according to industry group GIIGNL. Hiroyuki Usami, a spokesman for Jera, said the company is aware of reports on the Sakhalin-2 project and is currently trying to confirm them with an LNG seller.
Korea Gas Corp., which sources about 1.5 million tons of LNG a year from Sakhalin-2, said it does not expect supply disruptions.
Russia’s Gazprom PJSC, which holds the remaining 50 percent of the Sakhalin projects, will automatically receive an equal stake in the new company, according to the decree. Sakhalin Energy Investment Co., the company currently operating the export facility, is headquartered in Russia.
If the foreign firms want stakes in the new Russian company, they must prove their rights in the old company, with Moscow having the final say on whether they will be admitted, according to the decree. There will also be an audit to determine what damage was caused by the actions of foreign companies, and companies would be liable to pay to the Russian government, the statement said.
https://www.independent.ie/business/world/putin-swoop-on-gas-plant-risks-forcing-foreign-partners-out-41805950.html Putin’s fall on the gas plant risks pushing away foreign partners