Russian President Vladimir Putin has transferred full control of a major oil and natural gas project partially owned by Shell and two Japanese companies to a newly founded Russian company, a bold move amid mounting tensions with the West over the military action. from Moscow in Ukraine.
Putin’s decree late Thursday orders the creation of a new company that would take over ownership of Sakhalin Energy Investment Co., which is nearly 50% controlled by British energy giant Shell and Japan-based Mitsui and Mitsubishi.
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Putin’s order cited “threats to Russia’s national interests and its economic security” as the reason for the move at Sakhalin-2, one of the world’s largest export-oriented oil and natural gas projects.
The presidential order gives the foreign companies one month to decide whether they want to keep the same shares in the new company.
Russian state-controlled natural gas giant Gazprom had a majority stake in Sakhalin-2, the country’s first offshore gas project that accounts for about 4% of the global market for liquefied natural gas, or LNG. Japan, South Korea and China are the main customers for the project’s oil and LNG exports.
Kremlin spokesman Dmitry Peskov said on Friday there is no reason to expect a halt in supplies following Putin’s order.
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Shell had a 27.5% stake in the project. After the start of Russian military action in Ukraine, Shell announced its decision to pull out of all its Russian investments, a move that it says has cost at least $5 billion. The company also has a 50% interest in two other joint ventures with Gazprom to develop oil fields.
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Shell said Friday it was studying Putin’s order, which has cast doubt on its investment in the joint venture.
“As a shareholder, Shell has always acted in the best interests of Sakhalin-2 and in accordance with all applicable legal requirements,” the company said in a statement. “We are aware of the decree and are assessing its implications.”
Seiji Kihara, deputy chief secretary of the Japanese cabinet, said the government was aware of Putin’s decree and is studying its impact. Japan-based Mitsui owns 12.5% of the project and Mitsubishi owns 10%.
Kihara stressed that the project should not be undermined because it is “relevant to Japan’s energy security,” adding that “anything that harms our rights to resources is unacceptable.”
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“We are investigating Russia’s intentions and the background behind this,” he told reporters during a twice-daily news briefing on Friday. “We are investigating the details and for future steps I have no prediction for you at this time.”
Asked during a conference call with reporters whether Putin’s move with Sakhalin-2 could herald similar action against other joint ventures involving foreign shareholders, Peskov said, “There cannot be a blanket rule here.” He added that “each case will be considered individually.”
Sakhalin-2 includes three offshore platforms, an onshore processing facility, 300 kilometers of offshore pipelines, 1,600 kilometers of onshore pipelines, an oil export terminal and an LNG plant.
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