Russia Moves to Take Full Control of Sakhalin-2 Oil and Gas Project

Putin signed a decree on Thursday to give Sakhalin-2 oil and gas project’s sole ownership to Russian state. Putin’s move could force investors Shell and Japan’s Mitsui and Mitsubishi to abandon the project as the Russo-Western economic battle deepens.

The decree said a new firm would take over all rights and obligations of Sakhalin Energy Investment Co, in which the two Japanese trading companies and Shell hold just under a 50% stake.

Putin’s decree comes in response to Western sanctions on Moscow following its invasion of Ukraine. It indicates that it is up to the Russian state to decide whether foreign shareholders are to remain in the consortium.

Shell has already made clear that it intends to exit the project months ago and has been discussing with potential buyers to sell its stake. Japan, on the other hand, said it would not give up its stakes in the project even if it is asked to leave. Sakhalin-2 is considered as an important project for Japan to secure energy supplies.

Mitsubishi said it was discussing with its partners in Sakhalin Energy and the Japanese government on potential responses to the decree.

Mitsui has a 12.5% stake in the project and Mitsubishi 10%, while Shell holds 27.5%, minus one share. Russian gas giant Gazprom has 50%, plus one share.

Sakhalin-2 supplies about 4% of the world’s current LNG market. Japan, South Korea and China are the main customers for oil and LNG exports.

According to Putin’s decree, Gazprom will keep its stake, but other shareholders are required to ask the Russian government for a stake in the new firm within one month. The government will then decide whether to allow them to keep a stake.

Shell CEO van Beurden said the company was making progress to exit the Sakhalin Energy joint venture.

Since May, Shell has been in talks with a consortium of Indian energy companies to sell its stake in the project.

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