Russia took control of a major oil and gas project in which Britain’s Shell has a 27.5% stake and Japan’s Mitsui and Mitsubishi another 22.5%.
Towards the end of last week, Russian President Vladimir Putin signed a decree to take over Sakhalin-2, in a move that particularly affects Japan.
The move could force Shell, Mitsui and Mitsubishi to ditch their investments as the economic fallout from the Ukraine war spreads.
Oil giant Shell said: “We are aware of the decree and are assessing its implications.”
The decree said that a new company would take over all the rights and obligations of Sakhalin Energy Investment.
Shell signaled in February that it would sell its Russian investments due to the conflict in Ukraine, including the flagship Sakhalin-2 facility in Russia’s Far East.
The company said in April that leaving Russia would mean a $4.6 billion hit.
The project, which supplies about 4% of the current world market for liquefied natural gas (LNG), is 50% owned and operated by Gazprom.
Under the decree, Gazprom will retain its stake, but other shareholders must apply to the Russian government for a stake in the new company within a month.
The government will then decide whether to allow them to keep a stake.
Shell has been in talks with potential buyers for its stake in the project, including some from China and India, according to previous reports by The Daily Telegraph and Reuters.
The firm’s chief executive, Ben van Beurden, said on Wednesday that Shell was “making good progress” on its plan to exit the joint venture.
“I can’t tell you exactly where we are because it’s a business process so I have to respect confidentiality, but I can tell you that when I got an update last week I was very pleased with where we are,” he said.
Analysis of Theo Leggett
BBC business correspondent
This appears to be a deeply political move. The impact is likely to be felt most deeply in Japan, which has been heavily involved in sanctions against Russia.
Three foreign companies have significant stakes in Sakhalin-2: Shell, Mitsui and Mitsubishi.
But Shell has already written off the value of its Russian assets and said it will leave the country.
Meanwhile, Japan relies heavily on imports of liquefied natural gas.
Competition for shipments globally is currently intense, with the Sakhalin project alone currently meeting about 8% of its needs.
So the prospect of Russia potentially hijacking Japanese interests in the project is sure to elicit an uneasy response in Tokyo, though ministers insist it won’t make imports “immediately impossible”.
If Russian supplies to Japan are cut off, it will have to find new sources elsewhere, increasing competition for available supplies.
That could push up prices globally, at a time when rising energy costs are already fueling inflation.
The five-page decree, which comes amid Western sanctions on Moscow over the Ukraine invasion, says it is up to the Kremlin to decide whether foreign shareholders should remain in the consortium.
Japan has previously said that even if asked to leave, it would not give up its interests in the Sakhalin-2 project, which is important for its energy security.
Shares of Mitsui and Mitsubishi fell 6% in trading on Friday on concern about losses, and the broader Nikkei index fell 1.9%.
A Mitsubishi spokesman said the company was in talks with its partners at Sakhalin Energy and the Japanese government on how to respond to Putin’s decree.
Mitsui did not immediately respond to a BBC request for comment, but told Nikkei Asia he was “in the process of confirming the facts.”
Mitsui has a 12.5% stake in the project and Mitsubishi 10%, while Shell owns 27.5% minus one share. Russian gas giant Gazprom has 50%, plus one share.
Japan, South Korea and China are the main customers for oil and LNG exports, according to Shell.
Japanese Chief Deputy Cabinet Secretary Seiji Kihara said the government was examining the contents of the decree and analyzing Moscow’s intentions.
“Generally speaking, our country’s interests in resources should not be affected,” he told a regular news conference, declining to say whether Japan was in contact with Moscow on the matter.
Japanese Industry Minister Koichi Hagiuda said the government did not view the decree as a requisition.
“The decree does not mean that imports of LNG from Japan will immediately become impossible, but it is necessary to take all possible measures in preparation for unforeseen circumstances,” he said.
pressure on gas
Saul Kavonic, head of Integrated Energy and Resources Research at Credit Suisse, noted that Russian LNG production in projects like Sakhalin-2 is likely to suffer over time as foreign expertise and parts become unavailable.
“This will materially tighten the LNG market in this decade,” he said.
He indicated that any increase in the Russian government’s involvement will only make the acquisition of these projects more difficult for many buyers.
He added that Japan was urgently looking for alternative supply options.
- BBC News World