Shell says will not take part in new Sakhalin LNG operator

LNG giant Shell said it would not take equity in the new operator of the Sakhalin-2 LNG export terminal in Russia.

President Vladimir Putin signed a decree in June allowing Russia to take charge of the Sakhalin-2 project due to Western sanctions imposed on Russia.

Sakhalin Energy LLC, the new operator of the Sakhalin-2 project, launched its operations on August 19.

Shell had a 27.5 percent interest in in the original entity, while Russia’s Gazprom had a 50 percent operating stake. Japan’s Mitsui owned 12.5 percent stake and compatriot Mitsubishi had 10 percent in the plant.

Gazprom remains the operator of the new entity, while Mitsui and Mitsubishi won approvals from the Russian government to take stakes in the new operator.

“Shell will not participate in the new entity established by executive order of the Russian Federal Government to operate the Sakhalin-2 liquefied natural gas (LNG) facility,” a Shell spokesperson said.

“We have notified the Russian Federal Government and our partners in Sakhalin Energy Investment Company Ltd (SEIC) that we will not take equity in the new LLC and that we reserve all our legal rights,” the spokesperson said.

Shell said earlier this year it would exit its joint ventures with Russia’s Gazprom and related entities, including its stake in the Sakhalin-2 LNG export terminal. The firm has been in talks since to sell the stake.

Shell’s CEO Ben van Beurden recently said that “it’s highly unlikely” that the firm would buy into the new Russian entity.

“That’s not in line with our intentions to leave our asset position in Russia. It, of course, throws little bit more uncertainty how exactly we will exit, but we are pretty clear on our intent,” van Beurden said.

LNG supply deal

The Sakhalin-2 LNG facility started producing LNG back in 2009 with a design capacity of 9.6 mtpa, but due to technical improvements and upgrades, together with weather and temperature conditions, production rose by 20 percent.

Besides the stake in the project, Shell has a contract to buy about 1 mtpa from the LNG plant.

“We continue to monitor developments relating to that contract and assess our options in line with applicable legal requirements and agreements,” the spokesperson said.

Shell has a diverse and flexible global supply portfolio which enables the firm to deliver LNG from multiple sources. It includes LNG supply from its equity assets across the globe and offtake from different LNG supply projects.

“Our non-participation in the new Sakhalin entity established by the Russian Federal Government will not impact our ability to continue to serve customers, in line with our commitments,” the spokesperson said.

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