Home Energy assets Russian LNG projects face lingering uncertainty as Kremlin consolidates control

Russian LNG projects face lingering uncertainty as Kremlin consolidates control

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President Vladimir Putin’s latest decree to halt sales of Russian energy assets leaves the status and progress of Russian liquefied natural gas (LNG) projects in disarray.

The decree takes full control of the 9.6 mmt/y Sakhalin-2 project in Russia’s far east. Shell plc has already announced its intention to sell its 27.5% stake in the project, but Putin’s decision could ultimately force out two Japanese investors.

The foreign partners of the 9.6 million metric tons/year Sakhalin-2 project, which also include Mitsui & Co. Ltd. (12.5%) and Mitsubishi Corp. (10%), must submit a new application to keep their stakes in a newly created company, Gazprom Sakhalin Holdings before the September 4 deadline. Gazprom PJSC owns a 50% stake plus one share in Sakhalin Energy Investment Co. Ltd. which was transferred to Gazprom Sakhalin Holdings.

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Japan imports half of Sakhalin 2’s capacity, nearly 5 mmty, and it is uncertain whether Japan will continue to receive shipments for the rest of the year.

Canceling the contracts would force Japan to source alternative supplies in a market where flexible LNG is hard to come by,” Drewry Shipping wrote in a recent note to customers. “Japan will most likely source alternative quantities from the United States, which would force it to compete with Europe for flexible LNG at much higher prices.”

However, Sakhalin-2’s exports to Japan have remained strong this year. From January to July, Japan received about 205 billion cubic feet compared to about 183 billion cubic feet during the same period in 2021, according to Kpler data.

Although Shell announced in February that it would leave Sakhalin-2, it has not recently commented on the status of its stake in the facility. The Japanese government has asked Mitsui and Mitsubishi to keep their shares in Sakhalin-2 despite the potential risks. Complicating matters was a Bloomberg report last week that Russia had asked Sakhalin buyers to pay Gazprombank JSC, which could expose shipments to sanctions.

The Japanese government is working with the public and private sectors to protect business interests and ensure stable LNG supply, Japan’s Trade and Industry Minister Koichi Hagiuda said at a recent press conference.

“Hopefully both companies can retain their stakes in the project as it has been legitimately and rightly developed and maintained,” said Hiroshi Hashimoto, head of the gas group at the Institute of Energy Economics in Japan. Japan. “However, this will depend on the negotiations and it is not guaranteed.”

Yamal LNG and Arctic LNG 2

Independent gas producer PAO Novatek did not release its first quarter financial results. The company said in late July that it also did not plan to release its second-quarter results.

Preliminary volumes of Novatek’s total gas sales, including LNG, fell 4% to nearly 17 billion cubic meters in the second quarter. LNG sales were down about 8% over the same period, the company said in July.

French major TotalEnergies SE will not sell its 20% and 10% stakes in the Yamal and Arctic LNG 2 projects without financial compensation, CEO Patrick Pouyanné told reporters in May.

“We have long-term contracts. The Yamal LNG contract is worth $50 billion. It is out of the question to be charged, in the absence of sanctions, 50 billion dollars,” said Pouyanné.

The Arctic LNG 2 project was expected to reach 20 mmty capacity by 2025, but Western sanctions have seen the project’s development stall. The Japan Bank for International Cooperation (JBIC) implemented a loan freeze on the project and extended the freeze again in June.

Before Russia invades Ukraine in February, the first train was due to start production next year, with trains two and three due to enter service in 2024 and 2026, respectively. Novatek has not received the necessary equipment, which calls into question the construction of the first train at Arctic LNG 2.

Operations are “complicated,” Novatek owner and CEO Leonid Mikhelson admitted in May, saying he could no longer confirm the timeline for the Arctic LNG 2 project.