- Putin on Thursday signed a decree to guarantee all rights
- A five-page decree follows the tightening of Western sanctions
- The move increases the risks for Western companies that are still in Russia
- Shell was already in talks to sell Sakhalin’s stake
TOKYO / LONDON, July 1 (Reuters) – President Vladimir Putin has stepped up bets on an economic war with the West and its allies with a decree taking full control of the Sakhalin-2 gas and oil project in the Far East East of Russia, a movement. this could force Shell and Japanese investors.
The decree, signed on Thursday, creates a new company to assume all the rights and obligations of Sakhalin Energy Investment Co., of which Shell (SHEL.L) and two Japanese trading companies Mitsui and Mitsubishi have just under 50%. Read more
The five-page decree, which follows Western sanctions imposed on Moscow for its invasion of Ukraine, indicates that the Kremlin will now decide whether foreign partners can stay.
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State-owned Gazprom (GAZP.MM) already has a 50% plus stake in Sakhalin-2, which accounts for about 4% of global liquefied natural gas (LNG) production.
The move threatens to baffle an already tight LNG market and increases the risks facing Western companies still in Russia.
“Russia’s decree effectively expropriates foreign stakes in the Sakhalin Energy Investment Company, marking a further escalation of ongoing tensions,” said Lucy Cullen, chief analyst at consulting firm Wood Mackenzie.
Many Western companies have already packed their bags, while others have said they would give up, but Putin’s move adds complications to an already complex process for those looking for a way out. Moscow has been preparing a law, which is expected to be passed soon, to allow the state to seize the assets of Western companies that decide to leave.
Shell, which has already canceled the value of all its Russian assets, made it clear months ago that it intended to leave Sakhalin-2 and has been in talks with potential buyers. He said Friday that he was evaluating the Russian decree.
Sources have said Shell believed there was a risk that Russia would nationalize assets held by foreigners, 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 stake, is one of the largest LNG projects in the world with a production of 12 million tonnes. Its cargoes are mainly destined for Japan, South Korea, China, India and other Asian countries.
Japan’s Mitsui has a 12.5% stake in Sakhalin-2 and Mitsubishi a 10% stake.
PURSUING ALTERNATIVES
Japan, which is heavily dependent on imported energy, previously said it would not give up its interests in the project.
Japanese Prime Minister Fumio Kishida said on Friday that Russia’s decision would not immediately stop development LNG imports, while Japan’s industry minister Koichi Hagiuda said the government did not consider the decree a requisition.
“The decree does not mean that LNG imports from Japan will be immediately impossible, but every possible step must be taken to prepare for unforeseen circumstances,” Hagiuda told reporters.
Japan has stockpiled LNG for 2 to 3 weeks in the hands of utility companies and gas suppliers in the city and Hagiuda has asked its U.S. and Australian energy counterparts for alternative supplies, he said.
Japan imports about 6 million tons annually or 10% of its LNG each year from Russia, most with long-term contracts from Sakhalin-2.
According to the decree, Gazprom maintains its stake, but other shareholders must apply to the Russian government for a stake in the new company within a month. The government will then decide whether to allow them to hold a shareholding.
Gazprom, Sakhalin Energy and the Russian Ministry of Energy did not respond to requests for comment.
A Mitsubishi spokesman said the company was discussing with Sakhalin partners and the Japanese government how to respond to the decree. Mitsui did not comment immediately.
Shares of Mitsui & Co (8031.T) and Mitsubishi Corp (8058.T) fell more than 5% on Friday, a much sharper drop than the broader market. Shell’s shares in London remained virtually unchanged.
Shell CEO Ben van Beurden told reporters Wednesday that the company is “making good progress” in its plan to exit the Sakhalin Energy joint venture.
“I can tell you that when I received an update last week, I was very pleased with where we are,” he said, without giving details.
In May, sources told Reuters that Shell was in talks with an Indian consortium to sell its stake. Read more
Russian LNG production from projects like Sakhalin-2 could suffer over time, as experience and foreign parts were not available, said Saul Kavonic, head of Integrated Energy Research and Resources at Credit Suisse .
“This will materially harden the LNG market this decade,” he said, adding that any increase in LNG projects with the participation of the Russian state would make some buyers more careful about buying loads.
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Report by Yuka Obayashi, Sakura Murakami, Ju-min Park, Kiyoshi Takenaka in Tokyo, Ron Bousso in London, Emily Chow in Kuala Lumpur, Muyu Xu in Singapore and; Written by Chang-Ran Kim and Edmund Blair; Edited by Simon Cameron-Moore and Carmel Crimmins
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