Page 6 - FSUOGM Week 34 2022

FSUOGM COMMENTARY FSUOGM

Russia sets up new entity to

manage Sakhalin-2

Japan has instructed its investors in the project to stand their ground

RUSSIA THE Russian state-owned entity has assumed already required European buyers of Russian
full control over the Sakhalin-2 LNG terminal piped gas to do this earlier this year. This move
WHAT: in the Far East, after the Russian government is primarily aimed at preventing Western gov-
A Russian state entity has previously accused the project’s foreign partners ernments from freezing Russian gas bills left in
assumed control over the of violating their shareholder obligations. foreign accounts, and shielding Gazprombank
Sakhalin-2 project in the Operated by Gazprom, the Sakhalin-2 from sanctions.
Russian Far East. LNG and oil project also involves Shell, which
announced earlier this year it would withdraw Status of other foreign ventures
WHY: from Russia in response to Moscow’s invasion Russian authorities have raised the prospect
Moscow has accused of Ukraine. The project’s other foreign partici- of seizing control of the Sakhalin-1 oil project
foreign investors pants are Japan’s Mitsui and Mitsubishi, but the as well, managed by Rosneft and ExxonMo-
including Mitsui and Japanese government has urged the pair to retain bil. Rosneft complained on August 4 that out-
Mitsuibishi of violating their interests, because of concerns about Japan’s put at Sakhalin-1 had practically ceased, and
their obligations at the energy security. that no oil was being shipped out. Oil pro-
project. The Sakhalin Energy Investment consortium duction is expected to resume in the second
has been replaced as project operator by Sakhak- half of October, however, according to one of
WHAT NEXT: linskaya Energia, the latter entity said on August the project’s minority shareholders, India’s
Japan has told its 19. Its priority will be to “ensure continuous and ONGC Videsh Ltd (OVL). Japanese consor-
investors in the project to reliable production [of hydrocarbons] and the tium SODECO also has a 30% interest in the
remain if they can, fearful fulfilment of all existing obligations [to contrac- development.
of the impact that their tors and customers].” Sakhalinskaya Energia Like Shell, ExxonMobil has pledged to
departure might have on was incorporated on August 5, under a Krem- leave its project, but is yet to do so. Talks to trans-
Japanese LNG supply. lin decree, as a limited liability company with a fer its 30% stake in the project to another com-
charter capital of just RUB10,000 ($167). But the pany were foiled earlier this month, after Russian
operator said it had “a high reserve of cash [at President Vladimir Putin issued a special decree
bank accounts] to continue the fulfilment of all prohibiting any changes to the Sakhalin-1 own-
of its financial obligations.” ership structure. The decree probably means
The Russian government previously said that ExxonMobil and other majors are unlikely to
foreign shareholders would have until early Sep- have any hope of gaining compensation for the
tember to assume interests in the new operator. multi-billion-dollar losses they have incurred
Gazprom will have just over a 50% interest in the from their decisions to leave Russia.
company, as it did in Sakhalin Energy Invest- Sakhalin-1 and Sakhalin–2 have been hailed
ment. Shell owned a 27.5% stake in the previous as being among the most successful international
operating company, while Mitsuibishi and Mit- partnerships in Russia’s oil and gas industry.
sui held a combined share of 22.5%. Amid political fallout from the war in Ukraine,
Sakhalin-2 was Russia’s first LNG plant to some in the Russian government and academics
be built. It was commissioned in 2009 and has a have lamented that ExxonMobil and Shell were
nameplate capacity of around 10mn tonnes per offered unfairly favourable terms in the projects
year (tpy). Sakhalin Energy Investment was orig- in the 1990s, a time when Moscow was anxious
inally controlled and operated by Shell, but two to attract foreign investment to help its economy
years prior to the project’s launch, in 2007, the recover from the turmoil that followed the col-
major was forced by the Russian government to lapse of the Soviet Union.
sell equity and cede operatorship to Gazprom. Another major foreign venture in the Rus-
Sakhalinskaya Energia said it would continue sian oil sector is Salym Petroleum – a partner-
production operations according to existing ship between Shell and Gazprom Neft. Gazprom
plans. Japanese newspaper Asahi Shimbun has Neft has accused Shell of interrupting the pro-
reported that representatives of the new opera- ject’s operations, and has asked a Russian court
tor have already reached out to key offtakers in to freeze the oil major’s share, the Moscow-based
Japan with proposals to agree new long-term Kommersant newspaper reported last week.
supply deals from the project. Japan is the biggest Gazprom Neft claims that Shell has prevented
buyer of the plant’s gas. the sale of oil from the project, mostly as a result
According to previous reports in the Rus- of Western sanctions. Salym Petroleum was
sian press, Moscow has considered requiring established by Shell in 1996 and comprises six
LNG buyers to pay for their cargoes in rubles large oilfields in the Khanty-Mansiysk region of
from special accounts at Gazprombank, having Western Siberia. ™

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