Russian President Vladimir Putin has upped the ante in game in an economic war with the West and its allies by decreeing full control of the Sakhalin-2 oil and gas project in the Russian Far East, a move that could force Shell and Japanese investors to withdraw from the project.
All rights and obligations of Sakhalin Energy Investments will be transferred to a new company that will be created by the decree, signed on Thursday. Shell and two Japanese trading companies, Mitsui and Mitsubishi, own just under 50 percent of Sakhalin.
The five-page decree, which came in the wake of Western sanctions imposed on Moscow for the invasion of Ukraine, indicates that the Kremlin will now decide whether foreign partners can stay.
State-owned Gazprom already owns 50%, as well as a stake in the Sakhalin-2 project, whose production accounts for about 4% of world LNG production.
The move threatens to destabilize the already under-supplied LNG market, even though Moscow has said it sees no reason to stop Sakhalin-2 shipments.
The move threatens to further disrupt the LNG market, although Moscow said it saw no reason to stop supplies from the project.
Japan imports 10% of LNG annually from Russia, mainly under a long-term contract from Sakhalin-2. The measure also increases the risks to Western societies yet in Russia.
Several Western companies have already terminated their business in Russia, while others have said they are about to do so. But Putin’s move adds complications to an already complex process for those seeking one via exit.
Moscow is preparing a law, which should be passed shortly, to allow the state to confiscate the assets of Western companies that have decided to leave.
Shell announced months ago that it intended to withdraw from Sakhalin-2 and was in negotiations with potential buyers. On Friday he said he was studying the Russian decree.
Shell owns 27.5% minus a stake in the Sakhalin-2 project, which is one of the largest liquefied natural gas projects in the world with a production of 12 million tons. Its expeditions are mainly direct in Japan, South Korea, China, India and other Asian countries.
Japan, which relies heavily on imported energy, has said it will not give up its interests in Sakhalin-2, with Japan’s Mitsui holding a 12.5% stake and Mitsubishi 10%.
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