Shell walks away from major Russian LNG project

Shell logo Source: Shell

Shell plc will walk away from Russia’s Sakhalin-2 liquefied natural gas project with nothing after President Vladimir Putin transferred the major facility to a new operating company. 

The London-based firm’s decision is the latest indication that Putin won’t allow international energy companies to realize big financial gains as they exit Russia over the invasion of Ukraine. The president has also issued a decree that blocks Exxon Mobil Corp. from selling its interest in the Sakhalin-1 oil project until the end of the year.

Shell had already written off the $1.6 billion value of its 27.5 per cent stake in Sakhalin-2 earlier this year. The company has a contract to receive LNG cargoes from the facility and is currently assessing “options in line with applicable legal requirements and agreements” as the venture is transferred to the new operator, according to its website. 

Shell will still be able to meet its commitments to supply customers with LNG regardless of its participation in the project, according to the website. 

The other foreign participants in Sakhalin-2, Japan’s Mitsui & Co. Ltd. and Mitsubishi Corp. have already agreed to transfer their stakes of 12.5 per cent and 10 per cent, respectively, to the newly established company. The remaining partner, Russia’s state-run gas giant Gazprom PJSC, holds 50 per cent of the current operator. 

Shell’s decision not to join the new Sakhalin-2 operating company is in line with the push by European governments to lessen economic ties with Russia over the invasion of Ukraine. Even so, the move could hand even more energy revenue to Russia if Gazprom absorbs the rest of Shell’s stake. Demand for LNG has soared around the world, partially as a result of Russia’s reduction of pipeline gas supplies to Europe. 

Earlier this year Shell sold its retail stations and lubricants business in Russia to Lukoil PJSC for an undisclosed sum. It’s working to get out of its 50 per cent stake in Salym Petroleum Development N.V., a joint venture with Gazprom Neft to develop oil fields in western Siberia.

© 2022 Bloomberg L.P.

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