Danger to Japan’s energy: Putin tightens his grip on LNG production

Danger to Japan’s energy
Putin strengthens hold on LNG production

In addition to Gazprom, Shell, Mitsui and Mitsubishi companies have so far been involved in the Sakhalin 2 project. It promotes liquid gas, including for Western countries. The president of Russia has now secured exclusive governance over the company by decree. This involves risks for shareholders and customers.

With a decree, Russian President Vladimir Putin extended his country’s control over a major energy project in the Far East. With this move, Russia secures access to the Sakhalin 2 project, which previously also produced liquid gas for Japan in a joint venture with Western participation. The Shell group and the Japanese companies Mitsui and Mitsubishi could therefore be expelled from the project. The decision could also further exacerbate the economic conflict between Russia and the West following the Russian invasion of Ukraine and the ensuing sanctions.

Japanese Prime Minister Fumio Kishida stressed that Putin’s move does not mean that deliveries of liquefied natural gas (LNG) through Sakhalin-2 are stopped immediately. About four percent of the world’s liquid gas production comes from Sakhalin-2. Putin’s five-page decree now gives Russia the power to decide whether foreign companies can continue to be involved in the Gazprom-led joint venture. Gazprom will therefore keep its shares and foreign companies will have to ask the Russian government if they can participate in a new joint venture.

The decision is therefore up to them. Meanwhile, after the Russian invasion of Ukraine, Shell had already announced that it would bid farewell to its 27.5% stake in Sakhalin-2. Things are different in Japan: the country wants to stick to the project, which is important for its energy supply. Shares of Mitsui and Mitsubishi fell about 6% on Friday. Mitsui has a 12.5% ​​stake in the oil and gas project, while Mitsubishi controls 10%. Gazprom holds 50 percent plus one share.

In the conflict surrounding the invasion of Ukraine, Putin’s step could also give new impetus to concerns that Russia might expropriate Western companies. From Germany, for example, the wholesaler Metro is still active in Russia, the consumer goods group Henkel wants to withdraw from the country and is examining options to implement the decision.

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