Image:Reuters Berita 24 English - As the economic tug-of-war over Ukraine intensifies, President Vladimir Putin's decision to assume co...
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| Image:Reuters |
Berita 24 English - As the economic tug-of-war over Ukraine intensifies, President Vladimir Putin's decision to assume control of the Sakhalin-2 gas and oil project in Russia's far east may compel Shell and Japan's Mitsui and Mitsubishi to quit their stakes.
According to the decree, Sakhalin Energy Investment Co., in which the two Japanese trading businesses and Shell Plc control slightly under 50% of the shares, and all rights and duties, would be transferred to the new company.
The five-page regulation, which was issued in the midst of Western sanctions against Moscow for the invasion of Ukraine, says the Kremlin will decide whether foreign owners will continue to be a part of the consortium.
Months ago, Shell made it obvious that it will abandon the project, and it has been in contact with prospective buyers ever since. But Japan has previously declared that, even if asked to leave, it would not give up its stake in the Sakhalin-2 project, which is crucial for ensuring its energy security.
On Friday during trading, shares of Mitsui & Co and Mitsubishi Corp dropped 6% due to worries about impairment losses. They performed worse than the larger Nikkei index, which fell 1.9 percent.
A Mitsubishi representative said the company was debating how to react to Putin's order with its partners in Sakhalin Energy and the Japanese government. Mitsui resisted the need to comment right away.
Mitsubishi and Mitsui each own 12.5 percent of the project, while Shell owns 27.5 percent, less one share. Gazprom, a major supplier of gas in Russia, owns 50% plus one share.
A FIGHT FOR JAPAN'S INTERESTS
Currently, Sakhalin-2 contributes 4% of the global liquefied natural gas (LNG) market. According to Shell, the top three markets for oil and LNG exports are China, South Korea, and Japan.
When asked about Putin's order, Japan's Deputy Chief Cabinet Secretary Seiji Kihara responded that the country was reviewing its details and determining Moscow's goals.
He declined to specify whether Japan was in contact with Moscow over the issue but stated at a regular press conference that "generally speaking, our country's interests in resources should not be affected."
Koichi Hagiuda, the minister of industry for Japan, will hold a press conference at roughly 4:30 p.m. (0730 GMT), although the government would not specify what the topic will be.
The regulation states that while Gazprom will preserve its stake, other investors must submit requests for stakes in the new company to the Russian government within a month. Then, the government will decide if they may keep a stake.
Ben van Beurden, the CEO of Shell, told reporters on Wednesday that the company's plan to leave the joint venture with Sakhalin Energy was "making good progress."
I can tell you that when I received an update last week, I was pretty happy with where we are, but I can't tell you exactly where we are because it's a business process and I have to respect confidentiality.
According to sources, Shell was in talks to sell its stake in Sakhalin-2 with a group of Indian energy companies in May, according to Reuters.
Russian LNG production from initiatives like Sakhalin-2, according to Saul Kavonic, head of Integrated Energy and Resources Research at Credit Suisse, is likely to deteriorate over time as international knowledge and components become less accessible.
This would considerably tighten the LNG market this decade, he predicted.
According to him, any increase in Russian government engagement will simply make it more challenging for many purchasers to purchase from these projects. He noted that Japan was actively looking for alternate supply possibilities.
