Page 22 - bne Magazine August 2022

22 I Companies & Markets bne August 2022
supplies to Europe and creating more demand for LNG in Asia that will draw off supplies currently going to Europe. Gazprom has stoked fears of gas shortages that would lead to a major energy crisis this autumn after it reduced flows of gas to Europe by 60% in the middle of June. Germany has already declared an energy crisis “alert”, the second in the EU’s three-stage energy crisis warning system.
Shell said it would sell its 27.5% stake in the joint venture as part of plans to leave Russia altogether after the latter invaded Ukraine at the end of February.
Japan's Mitsubishi and Mitsui also own 10% and 12.5% stakes in the project respectively. Russia's Gazprom is the majority owner with a 50% plus one share stake.
Sakhalin-2 in Russia's Far East supplies circa 4% of the global LNG market and is a key source of energy for Asian countries and Japan in particular, which is heavily dependent on LNG imports.
Shell said it was “assessing the implications” of Putin’s decree that would allow its government to take charge of the Sakhalin-2 natural gas project. Shell owns a 27.5% stake and has not yet withdrawn from the project, despite the fact that several other international energy majors are in the process of exiting from their Russian investments.
Observers have worried that the Kremlin will start nationalising key companies in strategic sectors following the imposition of extreme sanctions in March. The West responded to Russia’s attack on Ukraine by launching what is in effect an economic war, with sanctions that are specifically designed
to denigrate Russia’s economy, according to European Commission President Ursula von der Leyen, and limit the revenues the Kremlin can earn from its raw materials exports.
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Putin’s decree creates a new firm that can take over the rights of the consortium’s Sakhalin Energy Investment Co. Japan imports 10% of its LNG each year from Russia, mainly under long-term contract from Sakhalin-2.
"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, as cited by Reuters.
Japan has condemned Russia’s invasion of Ukraine and
has sided with the West in votes in the UN against Russia. But bereft of energy of its own, it remains almost entirely dependent on energy imports. Tokyo has said it will not give up its interests in Sakhalin-2.
Japanese Prime Minister Fumio Kishida said on July 1 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, Reuters reported.
"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 two to three weeks of LNG stocks held by utilities and city gas suppliers and Hagiuda has asked his US and Australian energy counterparts for alternative supplies.
A Mitsubishi spokesperson told Reuters that the company was also discussing with partners in Sakhalin and Japan's government about how to respond to the decree. Mitsui has yet to comment.
Fitch cuts Turkey to five notches below investment grade
Akin Nazli in Belgrade
Fitch Ratings has downgraded Turkey’s sovereign rating by one notch to B with a Negative outlook, the ratings agency said on July 8.
Following the change, Fitch Ratings rates Turkey at B/ Negative, five notches below investment grade. Moody’s Rating Services rates Turkey at B2/Negative, five notches below investment grade, while Standard & Poor’s has Turkey at B+/Negative, four notches below investment grade.
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More downgrades are on the way.
Fitch forecasts official annual inflation in Turkey to
average 71% in 2022, the highest inflation level of Fitch- rated sovereigns. The ratings firm said Turkey's inflation trajectory remained highly uncertain due to increased risks of backward indexation, rising expectations and additional lira depreciation, as the exchange rate pass-through has increased in both speed and magnitude.