Putin Moves to Seize Sakhalin-2, the Natural Gas Venture


Russia is moving to take over an important natural gas joint venture, putting the investments of Shell and two Japanese trading companies, Mitsui and Mitsubishi, at risk.

A decree issued by President Vladimir V. Putin on Thursday said the project, called Sakhalin-2, which is on Sakhalin Island in Russia’s Far East and is a key exporter of fuel to Japan, would be taken over by a new company.

Shell has previously said it planned to exit its 27.5 percent stake in the venture, as part of its efforts to pull out of Russia following the invasion of Ukraine.

Mr. Putin may be trying to head off those efforts. Under certain circumstances, the Russian government would be able to keep the proceeds from any sale, Reuters reported.

On Friday, Shell said it was “assessing” the implications of Russia’s move but declined to comment further. Shell has already written off $1.6 billion of the value of Sakhalin-2.

The presidential order is unlikely to inflict much immediate damage on Shell, Europe’s largest energy company, which reported a record $9.1 billion in profits for the first quarter of this year, because of high oil and gas prices. It could, though, herald other strong-arm tactics against Western oil companies that still have assets in Russia.

After the invasion of Ukraine in February, Shell said that it would exit Sakhalin-2 and other ventures in Russia, although it did not set a precise date or indicate what it would do with its stake and other ventures. In May, Shell sold its gas stations in Russia to Lukoil, a private Russian company.

If it gave up Sakhalin-2 Shell would also lose its share of the liquefied natural gas exported by the project, which amounts to about 7 percent of the company’s global L.N.G. capacity, according to an estimate by Jefferies, an investment bank. L.N.G. is a key business for Shell.

Gazprom, the state-controlled energy giant, has a controlling 50 percent stake in Sakhalin-2, while Mitsui has 12.5 percent and Mitsubishi 10 percent. Under the decree, Gazprom will keep its share, while Shell, Mitsui and Mitsubishi will be required to ask for new stakes, Reuters reported.

The smooth flow of fuel supplies from Sakhalin-2 to Japan and other countries may be the primary concern after this move, but so far, Japan has taken a less confrontational approach to Russia than European countries over the war in Ukraine.

Prime Minister Fumio Kishida of Japan said the government needed to keep “a watchful eye on the kind of demands” the new arrangement may bring. Both Mitsui and Mitsubishi said there had been no impact on production at Sakhalin-2 so far.

Ben Dooley and Hisako Ueno contributed reporting.



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