Putin signs decree transferring Sakhalin 2 assets to new Russian company

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Putin signs decree transferring Sakhalin 2 assets to new Russian company

A decree transferring rights to the Sakhalin 2 natural gas project to a new Russian company was signed by Bloomberg President Vladimir Putin, which could force foreign owners including Shell Plc to abandon their investment in the facility.

According to a statement from the Kremlin and signed by Putin, the decree cites threats to Russia's national interests and economic security. The statement said that stakeholders have one month to decide whether they will take stakes in the new company, and those who opt out may not be fully compensated.

The move could be complicated for energy giant Shell, which holds a 27.5% stake in the liquefied natural gas facility in Russia southeastern. The energy giant said it would leave the project after Russia invaded Ukraine and wouldn't commit to any new investments in the country.

The Chief Executive Officer Ben van Beurden said earlier this week that they are making progress selling their stake, which Wood Mackenzie estimates is worth $4.1 billion. People familiar with the details said in April that China's key state-owned energy companies are in talks with Shell to buy its stake in the project.

A Shell spokeswoman wasn't able to offer any immediate comment.

The world is struggling with rising fuel prices as Putin steps up the use of gas as a weapon, and any attempt by Moscow to take over energy assets could rile markets further. Western energy firms are trying to leave Russian projects, but are struggling to find willing buyers.

Other Russian energy assets with foreign owners include the Sakhalin 1 oil project and the Yamal LNG project.

Japanese trading houses Mitsubishi Corp. and Mitsui Co. own 22.5% of the Sakhalin 2 project, and a majority of the gas produced there supplies Japan. Prime Minister Fumio Kishida said in March that the country won't withdraw from Sakhalin 2, while Japan was quick to impose a range of sanctions on Russia over its invasion of Ukraine.

An official at Japan's Ministry of Economy, Trade and Industry said they were still trying to confirm media reports on the Sakhalin 2 project. Representatives for Mitsubishi and Mitsui said they were still checking the situation.

The joint venture between Tokyo Electric Power Co. Holdings Inc. and Chubu Electric Power Co. buys 2 million tons of LNG a year from the project under long-term deals, according to industry group GIIGNL. Hiroyuki Usami, a spokesman for Jera, said the company is aware of reports on the Sakhalin-2 project and is currently trying to confirm it with an LNG seller.

Russia s Gazprom PJSC, which holds the remaining 50% of the Sakhalin projects, will automatically get the same stake in the new company, according to the decree. Sakhalin Energy Investment Co., a company that currently operates the export facility, is headquartered in Russia.

If foreign firms want stakes in the new Russian venture, they must provide proof of their rights in the old company, with Moscow having the final say on whether or not they are allowed in, according to the decree. The statement said that there would be an audit to determine what damages were caused by actions by foreign companies, and companies will be responsible for paying Russian government damages.

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