Russian President Vladimir Putin has increased the stakes in Russia’s economic conflict with the West and its allies by appointing complete control of the Sakhalin-2 gas and oil project in Russia’s Far East, potentially forcing Shell and Japanese investors out of the project.
All of Sakhalin Energy Investments’ rights and liabilities will be transferred to a new firm constituted by the decree, which was signed on Thursday. Sakhalin is owned by Shell and two Japanese trade corporations, Mitsui and Mitsubishi.
The five-page directive, issued in response to Western sanctions imposed on Moscow for its invasion of Ukraine, suggests that the Kremlin will now decide whether or not to accept international partners.
The state-owned Gazprom already has 50% plus one interest in the Sakhalin-2 project, the output of which accounts for around 4% of global LNG production.
The decision threatens to disrupt the already oversupplied LNG market, however Moscow has stated that it sees no reason to suspend Sakhalin-2 exports.
The action threatens to further destabilise the LNG market, however Moscow has stated that it sees no need to cease project supply.
Japan imports 10% of its LNG from Russia each year, mostly under a long-term arrangement with Sakhalin-2. The legislation also increases the dangers for Western corporations that remain in Russia.
Several Western firms have already ceased operations in Russia, while others have stated that they are in the process of doing so. However, Putin’s move complicates an already difficult procedure for individuals searching for a route out.
Moscow is formulating legislation, which is anticipated to be enacted shortly, that would allow the state to seize the assets of Western corporations that have elected to leave.
Shell revealed its intention to exit Sakhalin-2 months ago and was in negotiations with possible bidders. It stated on Friday that it was analysing the Russian decree.
Shell holds 27.5% minus one interest in the Sakhalin-2 project, one of the world’s largest liquefied natural gas projects with a capacity of 12 million tonnes. Its key markets include Japan, South Korea, China, India, and other Asian nations.
Japan, which relies heavily on imported energy, has stated that it would not relinquish its investment in Sakhalin-2, with Mitsui having a 12.5% stake and Mitsubishi 10%.
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