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Russia seizes control of Sakhalin gas project, raises stakes with West

Commodities Jul 01, 2022 12:53PM ET
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2/2 © Reuters. FILE PHOTO: A general view of the liquefied natural gas plant operated by Sakhalin Energy at Prigorodnoye on the Pacific island of Sakhalin, Russia July 15, 2021. REUTERS/Vladimir Soldatkin 2/2

By Yuka Obayashi, Emily Chow and Ron Bousso

TOKYO/LONDON (Reuters) - President Vladimir Putin has raised the stakes in an economic war with the West and its allies with a decree that seizes full control of the Sakhalin-2 gas and oil project in Russia's far east, a move that could force out Shell (LON:RDSa) and Japanese investors.

The order, signed on Thursday, creates a new firm to take over all rights and obligations of Sakhalin Energy Investment Co, in which Shell and two Japanese trading companies Mitsui and Mitsubishi hold just under 50%.

The five-page decree, which follows Western sanctions imposed on Moscow over its invasion of Ukraine, indicates the Kremlin will now decide whether the foreign partners can stay.

State-run Gazprom (MCX:GAZP) already has a 50% plus one share stake in Sakhalin-2, which accounts for about 4% of the world's liquefied natural gas (LNG) production.

The move threatens to unsettle an already tight LNG market, although Moscow said it saw no reason for Sakhalin-2 deliveries to stop. Japan imports 10% of its LNG each year from Russia, mainly under long-term contract from Sakhalin-2. The action also raises the risks facing Western companies still in Russia.

"Russia's decree effectively expropriates foreign stakes in the Sakhalin Energy Investment Company, marking a further escalation in ongoing tensions," said Lucy Cullen, a principal analyst from consultancy Wood Mackenzie.

Many Western firms have already packed up, while others have said they would quit, but Putin's move adds complications to an already complex process for those looking for the exit. Moscow has been preparing a law, expected to pass soon, to allow the state to seize assets of Western firms which decide to go.

Shell, which has already written off the value of its Russian assets, made clear months ago it intended to quit Sakhalin-2 and has been in talks with potential buyers. It said on Friday it was assessing the Russian decree.

Sources have said Shell believed there was a risk Russia would nationalise foreign-held assets, while Putin has repeatedly said Moscow would retaliate against the United States and its allies for freezing Russian assets and other sanctions.

Sakhalin-2, in which Shell has a 27.5% minus one share stake, is one of the world's largest LNG projects with output of 12 million tonnes. Its cargoes mainly head to Japan, South Korea, China, India and other Asian countries.

MAKING PREPARATIONS

Kremlin spokesman Dmitry Peskov said Russia saw no grounds for halting LNG deliveries from Sakhalin-2 and said the future of other projects or investments would be determined case by case.

"There can be no general rule here," he said.

Japan, which depends heavily on imported energy, has said it would not give up its interests in Sakhalin-2, in which Japan's Mitsui has a 12.5% stake and Mitsubishi holds 10%.

Japanese Prime Minister Fumio Kishida said on Friday that Russia's decision would not immediately stop LNG imports from the development, while Japan's Industry Minister Koichi Hagiuda said the government did not consider the decree a requisition.

"The decree does not mean that Japan's LNG imports will become immediately impossible, but it is necessary to take all possible measures in preparation for unforeseen circumstances," Hagiuda told reporters.

Japan has 2-3 weeks of LNG stocks held by utilities and city gas suppliers and Hagiuda has asked his U.S. and Australian energy counterparts for alternative supplies, he said.

According to the decree, Gazprom keeps its stake but others must ask the Russian government for a stake in the new firm within one month. The government will decide whether to approve any request.

Gazprom, Sakhalin Energy and the Russian energy ministry did not respond to requests for comment.

A Mitsubishi spokesperson said the company was discussing with partners in Sakhalin and Japan's government about how to respond to the decree. Mitsui did not comment immediately.

Shares in Mitsui & Co and Mitsubishi Corp slid more than 5% on Friday. Shell's shares edged higher.

Shell Chief Executive Ben van Beurden said on Wednesday the company was "making good progress" in its plan to exit from the Sakhalin Energy joint venture without giving details.

Sources had told Reuters in May that Shell was in talks with an Indian consortium to sell its stake.

Russian LNG production from projects such as Sakhalin-2 was likely to suffer as foreign expertise and parts became unavailable, said Saul Kavonic, head of Integrated Energy and Resources Research at Credit Suisse.

"This will tighten the LNG market materially this decade," he said.

Russia seizes control of Sakhalin gas project, raises stakes with West
 

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Comments (12)
lup sup
lup sup Jul 01, 2022 7:04PM ET
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Bidet started this, expect Russians to do the same.
Brad Albright
Brad Albright Jul 01, 2022 7:04PM ET
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Let us hope a foreign country attacks you and your family. Then maybe you'll wake up.
kiven Geldon
kiven Geldon Jul 01, 2022 2:29PM ET
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Does anyone even trust Reutbots news anymore.
First Last
First Last Jul 01, 2022 2:29PM ET
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Since TRI has been outperforming SPY for >1 year & reported profit in last er, ...
Abc Xyz
Abc Xyz Jul 01, 2022 1:09PM ET
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Why do we drag ourself into this war of pests? These funkers were members of USSR. Just let these trash wipe out each other.
Brad Albright
Brad Albright Jul 01, 2022 1:09PM ET
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I think it is mental illness.
John Conforti
John Conforti Jul 01, 2022 1:04PM ET
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Putin is playing these puppet western Politicians like a Grand Piano. Clearly Western sanctions are failing and Rouble continues to climb.
gary bills
gary bills Jul 01, 2022 9:02AM ET
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Revelation 21:8 But for the cowardly and unbelieving and abominable and murderers and immoral persons and sorcerers and idolaters and all liars, their part will be in the lake that burns with fire and brimstone, which is the second death.” Source: https://bible.knowing-jesus.com/topics/Liars
Anthony Crowley
Anthony Crowley Jul 01, 2022 9:02AM ET
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Go away
First Last
First Last Jul 01, 2022 9:02AM ET
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Putin is not a real Christian.  The Russian Orthodox Church is already subverted by him into an arm of his regime.  Expect this state Church to proclaim Putin a saint or messiah soon.
Benjamin USA
Benjamin USA Jul 01, 2022 8:34AM ET
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Soviets are back lmao
Zen Cat
LittleZenCat Jul 01, 2022 8:34AM ET
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They never really left methinks. Just a rebranding for PR purposes.
Mekigis Laukinis
Mekigis Laukinis Jul 01, 2022 8:34AM ET
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they never been gone, just spreading now to west and usa, with great success.
Brad Albright
Brad Albright Jul 01, 2022 8:34AM ET
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15,000 sons of Russian mothers deceased in service of Putin's vanity. Great success.
Brad Albright
Brad Albright Jul 01, 2022 8:34AM ET
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Eh. What's human life, right?
choi borsa
choi borsa Jul 01, 2022 7:48AM ET
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excellent. Can't wait to see the Japanese shareholders kicked out.
Chris Vu
Chris Vu Jul 01, 2022 7:48AM ET
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Good! Let Russia be another North Korea. No more foreign investment, no parts, no foreign expertise.
Lotus Liz
Lotus Liz Jul 01, 2022 7:48AM ET
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Can't wait to see Russians fighting over a single coin in desperation
Mekigis Laukinis
Mekigis Laukinis Jul 01, 2022 7:48AM ET
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they dont care. fu&%€p west with your insvestments and fiat money press
Matt Skinner
Matt Skinner Jul 01, 2022 6:32AM ET
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This is a good way to make sure no one evwr i veat in the country agian. Europe may by cold for a year but russia will be 100 years behind in 10 years.
choi borsa
choi borsa Jul 01, 2022 6:32AM ET
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you mean no western companies anymore.
Trumpster Rocks
Trumpster Rocks Jul 01, 2022 5:46AM ET
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Have No fear Joe is here to save the day ! Whewww sorry guys I had to wake up or is it sleepy joe?
Show previous replies (4)
Benjamin USA
Benjamin USA Jul 01, 2022 5:46AM ET
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U are obsessed with joe and trump haha maybe you want to get double teamed? Idk why else?? So weird!
Trumpster Rocks
Trumpster Rocks Jul 01, 2022 5:46AM ET
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Chris Vu Name what Trump did Wrong Lib####? We will wait? lmao Nothing even the 3 yr targeted investigation came up with Zero! On the other hand let's see there's Killary,Schummer,Pencil neck, and of course JoeblunderandSon 30million whitehouseforsellScandal ! Explain that ?
Brad Albright
Brad Albright Jul 01, 2022 5:46AM ET
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I simply asked a question. I had hope you would answer it instead of flipping out like a triggered know-nothing kook.
Trumpster Rocks
Trumpster Rocks Jul 01, 2022 5:46AM ET
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Brad Albright  Brad Albright You mean democraps mascaradingasrepublicans don't you? You are seriously nieve and drink the kool-aid of hate from the left. Because President Trump ruined there Swampneverending back pocket deals! You truly need to wake up after 6 yrs of Trump trump trump .. lib##### are eat up with bs and love it. they have no lives just bs...
Trumpster Rocks
Trumpster Rocks Jul 01, 2022 5:46AM ET
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Brad Albright  Here's your problem. You are relying on Misinformation from the Msm..Fake News! You still don't get it do you lib####? Joe and Hunter are the only Traitors ! It was a total Farce the Steal Dossier was paid for by Hillary and backed by big O..a total Farce. Wake up while you still have a Country!
Nils Hullmann
Nils Hullmann Jul 01, 2022 4:23AM ET
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i wish there was so much outrage when US bombed the living sh0t out of other countries
Matt Skinner
Matt Skinner Jul 01, 2022 4:23AM ET
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The usa mission were al backed by the rest of the world. Even russia typically didn’t vote agianst usa aggression. You sound ignorant
First Last
First Last Jul 01, 2022 4:23AM ET
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And the US uses smart munition for precise strikes.  Russia is using cheap munitions to turn whole cities/towns into rubble.  The US also don't kidnap civilians to put into concentration camps nor bomb them as they escape.  Usually the people the US is bombing wants to immigrate into the US and the US wants to deny entry.
Mekigis Laukinis
Mekigis Laukinis Jul 01, 2022 4:23AM ET
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First Last oh really ?
First Last
First Last Jul 01, 2022 4:23AM ET
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Mekigis Laukinis  Really.   And "Following the 2022 Russian invasion of Ukraine, more than 300,000 Russian citizens and residents are estimated to have left Russia by mid-March 2022 as political refugees and economic migrants, due to a desire to evade criminal prosecution for exercising free speech regarding the invasion." -- wikipedia, "Russian_emigration_following_the_2022_invasion_of_Ukraine"
First Last
First Last Jul 01, 2022 4:23AM ET
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Contrast with the lower number for US during Vietnam War:  'Estimates of the total number of American citizens who moved to Canada due to their opposition to the war range from 50,000 to 125,000. This exodus was "the largest politically motivated migration from the United States since the United Empire Loyalists moved north to oppose the American Revolution."' -- wikipedia, "Vietnam_War_resisters_in_Canada"
 
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