Russia Tightens Grip on Sakhalin-2 LNG Project -- 2nd Update

By Mauro Orru and Jaime Llinares Taboada

Russian President Vladimir Putin on Thursday signed a decree to transfer all rights and obligations of a consortium behind the Sakhalin-2 oil and gas project to a new Russian entity, effectively giving the Kremlin a veto over which foreign investors will be allowed to keep their stake.

Sakhalin-2, in Russia's far east, is one of the world's largest oil and gas projects that supplies about 4% of the global liquefied natural gas market. Shortly after Moscow's invasion of Ukraine, Shell PLC said it would sell its 27.5% stake in the project as part of plans to leave Russia altogether. Japan's Mitsubishi Corp. and Mitsui & Co. own 10% and 12.5% in the project, respectively, while Russian energy giant Gazprom PJSC owns 50%.

The new decree, justified by Russia as a response to the "unfriendly actions" of the U.S. and other governments, gives foreign investors one month to ask the Russian government for a stake in the new entity. Should there be a refusal, the government has four months to sell the stake.

A Shell spokesperson said the company is aware of the decree and is assessing its implications. "As a shareholder, Shell has always acted in the best interests of Sakhalin-2 and in accordance with all applicable legal requirements," the spokesperson said.

Representatives for Mitsui and Mitsubishi said they were also looking at the decree and holding talks with the Japanese government on what steps to take.

Last month, Reuters reported that Shell was in talks to sell its investment in Sakhalin-2 to an Indian consortium. In addition, the U.K. company has sold its downstream business in Russia to Lukoil PJSC, Russia's second-largest oil producer.

Russia's invasion of Ukraine also forced peer BP PLC to exit its investments in the country. BP took a $25.5 billion accounting charge at its first-quarter results, largely driven by a writedown of its 20% stake in Rosneft Oil Co.

The war has strained international energy cooperation. On May 31, Gazprom said it was cutting gas supplies to Shell and Denmark's Oersted AS after they refused to make payments in rubles.

Also in May, a Finnish consortium rescinded a contract to build a nuclear power plant with Russian state-owned nuclear enterprise Rosatom, citing its inability to deliver the project after Moscow's invasion of Ukraine.

Write to Mauro Orru at [e-mail]; @MauroOrru94 and Jaime Llinares Taboada at [e-mail]

(END) Dow Jones Newswires

July 01, 2022 07:24 ET (11:24 GMT)

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