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Russia seizes Sakhalin LNG project in major escalation

Shell, one of the main shareholders in the Gazprom-operated project, announced in the end of the February that it intended to withdraw from oil and gas operations in Russia

Russia seizes Sakhalin LNG project in major escalation

Yuzhno-Sakhalinsk, July 4 - Neftegaz.RU. Russia has seized control of the internationally-run Sakhalin-2 LNG and oil project under a Kremlin decree announced on June 30, potentially putting other Western oil & gas investments at risk of similar action, NGW analysed.

Shell, one of the main shareholders in the Gazprom-operated project, announced on February 28 that it intended to withdraw from oil & gas operations in Russia, days after Moscow launched its invasion of Ukraine.
Other Western oil majors including BP and ExxonMobil have also said they will depart the country.

In a statement, the Kremlin said that there was a risk of «natural disasters and man-made emergency situations endangering the life and safe of people and threatening the national interests and economic security of the Russian Federation,» in light of the «violation by foreign entities and individuals of their obligations» at Sakhalin-2.

The Russian government will therefore establish a limited liability company that will take over the rights and obligations of Sakhalin Energy, the project's operator, the Kremlin said.

Gazprom owns a 50% plus one share in Sakhalin Energy, while Shell has a 27.5% stake, and Japan's Mitsui and Mitsubishi have shares of 12.5% and 10% respectively.

In contrast to Shell, the consortium's Japanese members have said they do not intend to leave the project, with the Japanese government arguing that such a move would simply allow countries like China to take over their shareholdings and secure the project's LNG.

Shell was instrumental in getting the Sakhalin project, which flowed its 1st hydrocarbons in 1998, off the ground. Gazprom in contrast only joined the project in 2006.

Russia's seizure of Sakhalin Energy mirrors the German government's recent seizure of Gazprom operations in Germany, including gas storage facilities.
Shell also has a JV with Gazprom Neft producing oil in west Siberia, called Salym Petroleum.
It recently offloaded its fuel and lubricants business in Russia in a deal with Russian private producer Lukoil.

BP is the international major most exposed to the Russian market, given its 19.5% stake in the country's largest oil producer, state-run Rosneft.
Meanwhile, ExxonMobil's flagship asset in Russia is its stake in the Rosneft-led Sakhalin-1 project.

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