Russia announces its control of the Sakhalin gas project in an escalation of the economic war
President Vladimir Putin has raised the stakes in an economic war with the West and its allies by decreeing full control of the Sakhalin-2 gas and oil project in Russia's Far East, a move that could force Shell and Japanese investors out of the project.
All rights and obligations of Sakhalin Energy Investments will be transferred to a new company that will be created by virtue of 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 on the heels of Western sanctions imposed on Moscow over its invasion of Ukraine, indicates that the Kremlin will now decide whether foreign partners can stay.
The state-owned Gazprom already owns 50 percent and one stake in the Sakhalin-2 project, the production of which represents about four percent of the world's LNG production.
The move threatens to destabilize the already under-supplied LNG market, although Moscow has said it sees no reason to halt shipments of Sakhalin-2.
The move threatens to further disrupt the LNG market, although Moscow has said it sees no reason to halt supplies from the project.
Japan imports 10% of LNG annually from Russia, and this is done mainly under a long-term contract from Sakhalin-2.
The measure also raises risks for Western companies still in Russia.
Several Western companies have already ended their business in Russia, while others have said they are in the process of doing so.
But Putin's move adds complications to an already complex process for those looking for a way out.
Moscow is preparing a law, expected to be passed soon, 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 talks with potential buyers.
On Friday, it said it was studying the Russian decree.
Shell owns 27.5% minus one 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 shipments are mainly directed to 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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