Vladimir Putin has ordered the transfer of all rights to the Sakhalin-2 natural gas project to a Russian entity to an extent that could force foreign investors such as Shell, Mitsubishi and Mitsui to abandon the project.
The Russian president’s decree said Western sanctions had created “the threat of an environmental and technological emergency” in Sakhalin-2, forcing Moscow to act “to defend its national interests.”
Putin’s decision is the first time the Kremlin has nationalized a company since hundreds of multinationals announced plans to withdraw from the country after Russia’s invasion of Ukraine. Moscow has repeatedly threatened this action if companies neglected their legal obligations to Russia or did not pay their workers.
The war in Ukraine and Russian cuts in gas supplies to Europe have scared markets, prompting accusations that Moscow is using its huge energy resources as a weapon and is pushing energy prices high.
The decree gives existing investors a month to decide whether or not to remain as stakeholders in the new entity. They must present documentation proving their ownership, although Gazprom of Russia will automatically retain its 50 percent stake plus one share. Gazprom did not return any requests for comment.
Stakeholders who choose not to participate in the project may not be fully compensated. Russia will conduct an audit to determine the damages and will charge Sakhalin-2 shareholders for them if found, according to the decree.
The Russian cabinet will manage the project until the appointment of an executive director of local management.
The 28-year-old Sakhalin-2 project was developed by Gazprom together with the oil company Shell, which has a 27.5% stake, and the Japanese commercial houses Mitsui and Mitsubishi, with respective shares of 12.5% and the 10%.
Shell said Friday that it “had always acted in the best interests of Sakhalin-2 and in accordance with all applicable legal requirements,” and was evaluating the implications of the decree. The company said in March it would leave the company, putting pressure on Japanese stakeholders.
Most Western companies with stakes in Russian energy projects are trying to sell them or have canceled their assets.
However, Japanese companies are expected to opt for the new deal, given Japan’s fragile power supply and the shutdown of most of its nuclear power plants following the collapse of the Fukushima Daiichi plant. in 2011.
Japan’s regional gas companies rely heavily on Russia to power some of the country’s largest cities, including half of the annual supplies used in Hiroshima, the birthplace of Prime Minister Fumio Kishida, and about 10% in Tokyo. Russian liquefied natural gas accounts for nearly a tenth of Japan’s total gas imports.
Kishida said on Friday that his government did not believe the decree would immediately stop supplying Russian LNG, “but we will have to pay close attention to what kind of contract will be required. [to foreign companies] under the decree. We need to communicate with business operators to think about how to respond. “
A Japanese government official familiar with the talks told the Financial Times that the creation of the new Russia-based operating entity could mean the consortium would have to pay taxes in Russia.
The official said Japan was prepared to endure even this to stay in Sakhalin, given the extremely favorable conditions under which it signed long-term LNG import contracts for the project and very high prices in the spot market. of LNG.
“We’re staying,” the Japanese official said.
The FT reported in April that Japanese gas companies were preparing plans to obtain LNG from Malaysia, Australia and the US in the event of a supply disruption to projects Japan had jointly developed with Russia.
The most exposed is Hiroshima Gas, which buys about 200,000 tons of LNG a year from Sakhalin-2 in a contract that lasts until March 2028.