Is Russia Kicking The West Out Of Key Energy Deals?

The decision by Russia to transfer ownership of Sakhalin-2, one of the largest LNG projects in the world, might kick out the West from key energy deals as a reply to the sanctions.

Is Russia Kicking The West Out Of Key Energy Deals? 1

A decree transferring ownership of the giant Sakhalin-2 oil and liquefied natural gas project to a new Russian company has been signed by President Vladimir Putin. The decision, which was taken in response to “unfriendly states'” actions, could drive away foreign stakeholders, including investors from the United Kingdom and Japan.

What is Sakhalin-2?

With an output of 12 million tons per year, it is one of the largest LNG projects in the world. The partnership between UK-based Shell, Japan’s Mitsui and Mitsubishi, and Russia’s Gazprom was established in 2009. The facility is situated in the Pacific Ocean, north of Japan, on the Russian island of Sakhalin. It mainly provides LNG to markets in Asia.

Who are the stakeholders in the project?

The Sakhalin Energy Investment Company oversaw the management and operation of Sakhalin-2. The energy behemoth Gazprom, based in Saint Petersburg, owns a 50% stake plus one share. The project’s three major shareholders are Mitsui (12.5%), Shell (27.5%), and Mitsubishi (10%). Shell is the largest LNG trader in the world.

What does Putin’s decree say?

The presidential order sets up a new Russian company to assume all of Sakhalin Energy Investment’s rights and obligations. While the other partners have one month to decide whether they want a stake in the new firm, Gazprom will retain its current stake. The stakes would be sold and the money raised transferred to a designated account if the Russian government rejects the proposal. The money might then either be transferred to the shareholder in accordance with the production sharing agreement or used to pay out unspecified damages, according to the decree. Those who chose to exit may not be fully compensated.

Is Russia nationalizing the project?

According to Kremlin spokesman Dmitry Peskov, the change of ownership of Sakhalin-2 cannot be regarded as nationalization. When questioned by reporters on Friday if more energy projects will be implemented, Peskov responded that each circumstance would be considered on a case-by-case basis.

How have foreign stakeholders reacted?

The company was aware of the ruling, according to a statement from Shell on Friday, and was “assessing its implications.” The company has been in contact with potential buyers, including those from China and India, and has been open about its desire to abandon the project for months. Those plans seem to be in danger.

It has already been stated by Japan that it will not give up its stake in the Sakhalin-2 project, which is crucial for the country’s energy security. Moscow had previously accused that Japan, a “unfriendly nation” that sided with the West in imposing sanctions on Russia, had benefited from its involvement in the project. Experts warn that Japan’s exit from the project won’t be simple. Tokyo will reportedly have to fork out $15 billion to replace Russian LNG from Sakhalin-2, with import costs rising by 35% if Mitsui and Mitsubishi decide not to participate. However, Russia could now decide for Japan to reroute its imports to countries like China, India, or Vietnam.

Could the changes hamper LNG supplies?

After the new operator assumes control, Moscow sees no reason for supplies to stop coming from Sakhalin-2. However, given that the European Union is adding to the already intense rivalry for liquified natural gas amid a global energy crisis, several analysts warn that the decision may disrupt an already fragile LNG market. Presently, Sakhalin-2 supplies 4% of the global LNG market.

GreatGameIndia is being actively targeted by powerful forces who do not wish us to survive. Your contribution, however small help us keep afloat. We accept voluntary payment for the content available for free on this website via UPI, PayPal and Bitcoin.

Support GreatGameIndia

Leave a Reply