RUSSIAN LNG FOR JAPAN AGAIN

PLATTS - 30 Aug 2022 - Russian Prime Minister Mikhail Mishustin signed an order Aug. 26 permitting Japan's Mitsui to take a 12.5% stake in the new Russian operator of the Sakhalin 2 oil, gas and LNG project in Far East Russia.

Mitsui said in a statement Aug. 31 that it was informed of the Russian government's approval Aug. 30, following the company's Aug. 25 submission of its consent to take ownership in the newly established operator of the Sakhalin 2 project.

Mitsui added that it "will proceed withdiscussions in connection with acquiring ownership" in the new Sakhalin 2 operator.

"We remain in discussion with stakeholders, including the Japanese government and business partners, regarding possible future action considering energy supply needs, while complying with related international sanctions," Mitsui added.

Russia ordered the transfer of the project to a new Russian operator, Sakhalinskaya Energija, following the introduction of Western sanctions in response to Russia's invasion of Ukraine.

The move led to concerns about reliability of exports from the project, as well as the status of foreign partners. Japan's Mitsui held a 12.5% stake in the previous operator, and Mitsubishi a 10% interest. Both companies indicated that they want to remain part of the project. The Russian government has not yet released details on whether it will approve the transfer of a 10% stake to Mitsubishi.

"The latest stake permission would not mean risk surrounding Japan's Sakhalin 2 stakes has cleared up," Takayuki Nogami, chief economist at Japan Oil, Gas and Metals National Corp., said.

"We still cannot rule out the possibility of threats to Japanese partner's stakeholding as well as uncertainties that persist over possible changes in Sakhalin 2 LNG supply volumes to Japanese end-users because of differences of opinion over contractual details."

Shell also held 27.5% minus 1 share in the previous operator. All three companies are based in countries that have been designated as "unfriendly" by the Russian government due to their governments introducing sanctions against Russia.

In February, Shell said it would withdraw from joint ventures with Gazprom and Gazprom Neft, including Sakhalin 2, following the invasion of Ukraine.

A spokesperson for Shell said the company continues to work on exiting Sakhalin Energy in line with applicable laws and existing agreements.

Shell CEO Ben van Beurden said July 28 that it is "highly unlikely" that the company will buy into a new Russian entity controlling Sakhalin 2.

"That is not in line with our intention to leave our asset position in Russia. Of course, it throws a little more uncertainty on how exactly we will exit but we are pretty clear on our intent, and to buy into a Russian entity would be incompatible with that," he said.

Under the new rules, foreign project partners were given until Sept. 5 to inform the Russian government of their intention to stay in the project.

Russia's state-owned Gazprom holds a 50% stake plus one share in the project.

Sakhalinskaya Energija said in a statement Aug. 26 that hydrocarbons production and supply from Sakhalin 2 is continuing in line with contractual obligations despite changes to the company operator and supply contracts.

Tokyo Gas and Japan's largest power generation company JERA said previously that they have signed new LNG supply agreements on the same terms as previous agreements. Sources said that new contracts were required due to the change of operator.

More than half of the 9.6 million mt/year LNG production capacity at Sakhalin 2 is committed to Japanese offtakers.

Russia accounted for 9% of Japan's total LNG imports of 74.32 million mt in 2021, its fifth-largest supplier, according to data from Japan's Ministry of Finance.

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