3 hours ago
Russia has taken measures to acquire a large oil and gas project in which Shell owns a 27.5% stake.
Russian President Vladimir Putin signed a decree on Thursday taking over the Sakhalin 2 project.
The move may force Japanese companies Shell, Mitsui and Mitsubishi to abandon their investments, as the economic crisis of the war in Ukraine expands.
“We are aware of the decree and are evaluating its implications,” said the oil giant Shell.
The decree stated that a new company would take over all rights and obligations of the Sakhalin Energy Investment Company.
Shell said in February it would sell off its Russian investments due to the conflict in Ukraine, including its flagship Sakhalin 2 facility in Russia’s Far East.
It said in April that leaving Russia would require £3.8 billion.
Gazprom operates the project, which provides about 4% of the current world LNG market, 50 and owns 50 percent of its shares.
According to the decree, Gazprom will retain its stake, but other shareholders must demand a stake in the new company from the Russian government within one month.
The government will then decide whether to allow them to hold a stake.
Shell has held talks with potential buyers of its stake in the project, including buyers from China and India, according to previous reports by the Daily Telegraph and Archyde.com.
The company’s chief executive, Ben van Beurden, said Wednesday that Shell was “making good progress” with its plan to exit the joint venture.
“I can’t say how far we’ve come because it’s a commercial process so I have to respect confidentiality, but I can say I’m really happy with the progress we’ve made,” he said.
Japanese procedures
The five-page decree, which comes amid Western sanctions on Moscow over the invasion of Ukraine, says it is up to the Kremlin to decide whether foreign shareholders should stay in the project.
Japan has previously said it will not give up its interests in the Sakhalin project, which is important to its energy security, even if it is asked to leave.
Mitsui and Mitsubishi shares fell 6 percent on Friday’s trading on concerns about losses, with the broader Nikkei index down 1.9 percent.
A Mitsubishi spokesperson said the company is in discussions with its partners at Sakhalin Energy and the Japanese government about how to respond to Putin’s decree.
Mitsui did not immediately respond to the BBC’s request for comment, but told Nikki Asia she was “in the process of confirming the facts”.
Mitsui owns 12.5% of the project and Mitsubishi 10%, while Shell owns 27.5% minus one share. Russia’s giant Gazprom owns 50% plus one share.
According to Shell, Japan, South Korea and China are the main customers for oil and liquefied natural gas exports.
Japanese Deputy Prime Minister Seiji Kihara said the country’s government is studying the contents of the decree and analyzing Moscow’s intentions.
“In general, our country’s resource interests should not be harmed,” he told a news conference, refusing to reveal whether Japan has been in contact with Moscow on this issue.
Japanese Industry Minister Koichi Hagiuda said the government did not consider the decree as a request.
“The decree does not mean that Japan’s imports of LNG will become impossible immediately, but it is necessary to take all possible measures in preparation for unforeseen circumstances,” he said.
pressure on gas production
Saul Kavonic, head of integrated energy and resources research at Credit Suisse, said Russian LNG production from projects such as Sakhalin 2 is likely to suffer over time as foreign expertise and spare parts become unavailable.
“This will put material pressure on the LNG market this decade,” he said.
He said any increase in Russian government involvement would make purchasing from these projects more difficult for many buyers.
He added that Japan is urgently seeking alternative supply options.
analysis
Theo Leggett – Economics correspondent
This appears to be a move of profound political significance. The impact is likely to be greater in Japan, which has been heavily involved in sanctions against Russia.
Three foreign companies own major stakes in Sakhalin 2, Shell, Mitsui and Mitsubishi.
But Shell has already written off the value of its Russian assets and said it will exit the country.
But Japan Japan heavily on imports of liquid natural gas.
The competition for shipments globally is currently intense, and the Sakhalin project alone currently meets about 8% of the needs of the global market.
So the prospect of Russia acquiring Japanese shares in the project is sure to generate a jittery response in Tokyo, although ministers there stress that the Russian decision will not make imports “immediately impossible”.
And if Russian supplies are cut off from Japan, it will have to find new sources elsewhere, which means increased competition for available supplies.
This could lead to higher prices globally, at a time when higher fuel prices are already driving up inflation.