Russian President Vladimir Putin recently raised the stakes in its financial conflict with Western parties, taking full control of the Russia-based Sakhalin-2 gas and oil project. Western offices worry the move could drive out Shell and Japanese investors, Reuters reported.
"Russia's decree effectively expropriates foreign stakes in the Sakhalin Energy Investment Company, marking a further escalation in ongoing tensions," principal analyst from consultancy Wood Mackenzie, Lucy Cullen, said.
The terms of the new order calls for the development of a new firm to oversee all duties pertaining to Sakhalin Energy Investment Co., of which two Japanese trading companies Mitsui and Mitsubishi hold just under 50% of.
Under the terms of the five-page decree, established after Western sanctions were imposed on Moscow following the invasion of Ukraine, the list of foreign partners eligible to stay will be determined by Kremlin, a Reuters report explains.
State-run Gazprom (GAZP.MM) currently holds a 50% plus one share stake in Sakhalin-2, which makes up approximately 4% of the global liquefied natural gas (LNG) production.
“The move threatens to unsettle an already tight LNG market, although Moscow said it saw no reason for Sakhalin-2 deliveries to stop,” a recent press release explains. “Japan imports 10% of its LNG each year from Russia, mainly under long-term contract from Sakhalin-2.”
While dozens of Western firms have already departed, others are contemplating the move, but are intimidated by the requirements implemented by Putin. The requirements would be imposed by a new law, which would allow Moscow officials to retain assets from any firm deciding to cease operations in Russia.