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

Russia Moves to Take Control of Sakhalin-2 Oil and Gas Project
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Shell owns a 27.5 percent share in a significant oil and gas project that Russia has tried to take over.

Vladimir Putin, the president of Russia, issued an executive order on Thursday to assume control of the Sakhalin-2 project.

As the economic repercussions of the Ukraine war extend, the decision may push Shell and Japan’s Mitsui and Mitsubishi to sell up their stakes.

“We are aware of the decision and are examining its consequences,” the oil colossus Shell stated.

According to the order, Sakhalin Energy Investment’s rights and liabilities will be transferred to a new company.

Due to the war in Ukraine, Shell said in February that it will sell its holdings in Russia, including the iconic Sakhalin 2 complex in the country’s far east.

It declared in April that leaving Russia will cost it £3.8 billion.

Gazprom owns and operates half of the project, which supplies 4% of the current global liquefied natural gas (LNG) market.

The regulation states that while Gazprom will preserve its interest, other investors must submit requests for stakes in the new company to the Russian government within a month.

Then, the government will decide if they may maintain a share.

According to prior reports by The Daily Telegraph and Reuters, Shell has been in discussions with prospective bidders for its part in the project, including some from China and India.

Ben van Beurden, the company’s chief executive, stated on Wednesday that Shell was “making good progress” in its decision to leave the joint venture.

I can tell you that when I received an update last week, I was pretty happy with where we are, but I can’t tell you precisely where we are because it’s a commercial process and I have to respect confidentiality, he added.

Russian LNG output from initiatives like Sakhalin-2, according to Saul Kavonic, head of Integrated Energy and Resources Research at Credit Suisse, is expected to deteriorate over time as international knowledge and components become less accessible.

This would considerably tighten the LNG market this decade, he said.

According to him, any rise in Russian government engagement would simply make it harder for many purchasers to purchase from these projects.

He noted that Japan was actively looking for alternate supply possibilities.