Russia seizes control of Sakhalin gas project, raises stakes with West

TOKYO/LONDON, July 1 (Reuters) – President Vladimir Putin has raised the stakes in an financial struggle with the West and its allies with a decree that seizes full control of the Sakhalin-2 gas and oil undertaking in Russia’s far east, a transfer that would power out Shell and Japanese traders.

The order, signed on Thursday, creates a brand new agency to take over all rights and obligations of Sakhalin Energy Investment Co, through which Shell (SHEL.L) and two Japanese buying and selling corporations Mitsui and Mitsubishi maintain slightly below 50%. learn extra

The five-page decree, which follows Western sanctions imposed on Moscow over its invasion of Ukraine, signifies the Kremlin will now resolve whether or not the overseas companions can keep.

State-run Gazprom (GAZP.MM) already has a 50% plus one share stake in Sakhalin-2, which accounts for about 4% of the world’s liquefied pure gas (LNG) manufacturing.

The transfer threatens to unsettle an already tight LNG market, though Moscow stated it noticed no purpose for Sakhalin-2 deliveries to cease. Japan imports 10% of its LNG every year from Russia, primarily beneath long-term contract from Sakhalin-2. The motion additionally raises the dangers going through Western corporations nonetheless in Russia.

“Russia’s decree effectively expropriates foreign stakes in the Sakhalin Energy Investment Company, marking a further escalation in ongoing tensions,” stated Lucy Cullen, a principal analyst from consultancy Wood Mackenzie.

Many Western corporations have already packed up, whereas others have stated they’d stop, however Putin’s transfer provides issues to an already complicated course of for these searching for the exit. Moscow has been getting ready a regulation, anticipated to go quickly, to permit the state to grab property of Western corporations which resolve to go.

Shell, which has already written off the worth of its Russian property, made clear months in the past it supposed to stop Sakhalin-2 and has been in talks with potential consumers. It stated on Friday it was assessing the Russian decree.

Sources have stated Shell believed there was a threat Russia would nationalise foreign-held property, whereas Putin has repeatedly stated Moscow would retaliate in opposition to the United States and its allies for freezing Russian property and different sanctions.

Sakhalin-2, through which Shell has a 27.5% minus one share stake, is one of the world’s largest LNG tasks with output of 12 million tonnes. Its cargoes primarily head to Japan, South Korea, China, India and different Asian nations.

MAKING PREPARATIONS

Kremlin spokesman Dmitry Peskov stated Russia noticed no grounds for halting LNG deliveries from Sakhalin-2 and stated the longer term of different tasks or investments could be decided case by case.

“There can be no general rule here,” he stated.

Japan, which relies upon closely on imported vitality, has stated it could not quit its pursuits in Sakhalin-2, through which Japan’s Mitsui has a 12.5% stake and Mitsubishi holds 10%.

Japanese Prime Minister Fumio Kishida stated on Friday that Russia’s choice wouldn’t instantly cease LNG imports from the event, whereas Japan’s Industry Minister Koichi Hagiuda stated the federal government didn’t contemplate the decree a requisition.

“The decree does not mean that Japan’s LNG imports will become immediately impossible, but it is necessary to take all possible measures in preparation for unforeseen circumstances,” Hagiuda instructed reporters.

Japan has 2-3 weeks of LNG shares held by utilities and metropolis gas suppliers and Hagiuda has requested his U.S. and Australian vitality counterparts for various provides, he stated.

According to the decree, Gazprom retains its stake however others should ask the Russian authorities for a stake within the new agency inside one month. The authorities will resolve whether or not to approve any request.

Gazprom, Sakhalin Energy and the Russian vitality ministry didn’t reply to requests for remark.

A Mitsubishi spokesperson stated the corporate was discussing with companions in Sakhalin and Japan’s authorities about how to reply to the decree. Mitsui didn’t remark instantly.

Shares in Mitsui & Co (8031.T) and Mitsubishi Corp (8058.T) slid greater than 5% on Friday. Shell’s shares edged greater.

Shell Chief Executive Ben van Beurden stated on Wednesday the corporate was “making good progress” in its plan to exit from the Sakhalin Energy three way partnership with out giving particulars.

Sources had instructed Reuters in May that Shell was in talks with an Indian consortium to promote its stake. learn extra

Russian LNG manufacturing from tasks similar to Sakhalin-2 was more likely to endure as overseas experience and elements turned unavailable, stated Saul Kavonic, head of Integrated Energy and Resources Research at Credit Suisse.

“This will tighten the LNG market materially this decade,” he stated.

Reporting by Yuka Obayashi, Sakura Murakami, Ju-min Park, Kiyoshi Takenaka in Tokyo, Ron Bousso in London, Emily Chow in Kuala Lumpur, Muyu Xu in Singapore and; Writing by Chang-Ran Kim and Edmund Blair; Editing by Simon Cameron-Moore and Carmel Crimmins

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